Deck 12: Budget, Balance and Government Debt

Question 1

State and local governments are usually required by state law to keep the budgets in balance.

Answer 1

True

Question 2

State revenue bonds are backed by the taxing power of state governments.

Answer 2

False

Question 3

The U.S. deficit in the 1980s was structural in the sense that federal spending would exceed federal revenue even at a level of full employment.

Answer 3

True

Question 4

From 1950 to 1980, the value of the federal debt as a percent of GDP declined.

Question 5

An increase in market rates of interest tends to decrease the market value of outstanding govern?ment debt.

Question 6

A federal budget surplus can lead to more credit being available for productive activity.

Question 7

Other things being equal, an increase in government borrowing is likely to increase interest rates.

Question 8

If business and personal saving are constant, then a federal budget deficit will have no impact on national saving.

Question 9

The federal budget has been in deficit:

A) for every year between 1970 and 1997.
B) for every year between 1950 and 1997.
C) only since 1980.
D) for every year between 1960 and 1997.

Question 10

The outstanding federal debt will decline in value if:

A) budget deficits continue.
B) the government runs a budget surplus.
C) the market rate of interest increases.
D) either b or c

Question 11

From 1950 to 2009, the federal government budget has been in balance in most years.

Question 12

More than 50 percent of the federal debt in recent years has been outside debt.

Question 13

As of 2011, the amount of federal debt outstanding was equal to twice the annual GDP.

Question 14

The burden of the debt is borne by those who purchase government bonds.

Question 15

A federal budget deficit can strain credit markets forcing the real rate of interest to decrease.

Question 16

The federal government budget recorded surpluses between 1998 and 2001.

Question 17

Deficit finance postpones taxation from the present to the future.

Question 18

Other things being equal, a government surplus increases the supply of loanable funds available for investment.

Question 19

The high employment budget deficit implies that increases in economic activity will not eliminate the actual deficit.

Question 20

If taxpayers anticipate future tax increases when government borrows to finance deficits, increased government borrowing will increase interest rates.

Question 21

Which of the following can contribute to a decrease in national saving?

A) a federal budget deficit
B) an increase in the state and local government aggregate surplus
C) a federal budget surplus
D) an increase in personal saving

Question 22

The total dollar value of the federal debt outstanding as of 2011 is:

A) more than 50 percent of GDP.
B) more than 100 percent of GDP.
C) nearly 75 percent of GDP.
D) less than 10 percent of GDP.

Question 23

High-employment deficit or surplus is:

A) an extreme economic situation requiring emergency measures.
B) the amount of deficit or surplus available assuming current employment levels.
C) the amount of deficit or surplus available when employment is at its approximately full capacity.
D) the amount of deficit or surplus available when unemployment is at a relatively high level.

Question 24

General obligation bonds of state and local governments are:

A) backed by revenue from public facilities such as sports stadiums.
B) backed by the taxing power of state and local governments.
C) usually used to finance transfer payments.
D) usually used to finance capital expenditures.
E) both b and d

Question 25

If the federal government runs a surplus consistently, then which of the following is likely to occur?

A) National saving will decline.
B) The gross federal debt will increase.
C) The gross federal debt will decrease.
D) Market equilibrium interest rates are likely to rise as a result of the surpluses.

Question 26

The largest portion of the net federal debt outstanding is owed to:

A) foreigners.
B) U.S. citizens and companies.
C) federal government agencies.
D) state and local governments.

Question 27

Evidence of "crowding out" in the market for loanable funds at a rate of 8% could be:

A) private investors who will borrow only at a rate lower than 8%.
B) private investors who are willing to accept a rate higher than 8% for borrowing.
C) a government surplus.
D) a social security surplus.

Question 28

The high employment deficit is estimated at $100 billion. Assuming that the economy is operating below full employment and that it will not overheat during the year,

A) the actual budget is not in deficit.
B) increasing GDP will eliminate the deficit.
C) increasing GDP will not eliminate the deficit.
D) the actual budget is in surplus.

Question 29

A bond that is backed by the tolls collected from a bridge to be constructed from the proceeds of the bond is an example of:

A) a general obligation bond.
B) a non-obligation bond.
C) a revenue bond.
D) none of the above.

Question 30

The debt of state and local governments is mostly:

A) internal.
B) external.
C) owed to citizens of other nations.
D) worthless.

Question 31

Other things being equal, a government budget surplus:

A) increases the demand for loanable funds.
B) increases the supply of loanable funds.
C) is likely to increase market equilibrium interest rates.
D) is unlikely to affect market equilibrium interest rates.

Question 32

Which of the following is true about the federal government budget balance in the United States?

A) The federal budget has never had a surplus.
B) The federal budget had a surplus every year from 1970 to 2008.
C) The federal budget had a surplus from 1998 until 2001.
D) The federal budget had a deficit from 1998 until 2001.

Question 33

As a result of government borrowing to cover deficits, citizens increase the supply of savings to provide themselves with funds to pay anticipated increases in future taxes. Then it follows that increased government borrowing will:

A) reduce private investment.
B) increase private investment.
C) have no effect of private investment.
D) increase interest rates.
E) both a and d

Question 34

What are the advantages and disadvantages of preventing the federal budget from ever being in deficit? In your answer discuss only public finance aspects of the deficit rather than macroeco?nomic issues. Explain why the high employment deficit or surplus might differ from the actual budget deficit or surplus.

Question 35

Government borrowing will:

A) postpone taxation to the future.
B) increase government interest cost.
C) both a and b
D) eliminate taxes.

Question 36

A government's internal debt is:

A) debt owed to other government agencies.
B) debt owed to other governments.
C) debt owed to its citizens.
D) both a and c.

Question 37

An increase in government borrowing has no effect on the willingness of citizens to save or on the demand for credit. Increased borrowing to cover deficits will therefore:

A) reduce interest rates.
B) increase interest rates.
C) have no effect on interest rates.
D) not require increased taxes in the future.

Question 38

The federal government, its agencies, and the Federal Reserve System:

A) are not permitted to hold outstanding federal debt.
B) hold 50 percent of the outstanding federal debt.
C) hold about 30 percent of the outstanding federal debt.
D) hold 75 percent of the outstanding federal debt.

Question 39

The National Income and Product Accounts budget balance reflects:

A) an inflation-adjusted budget balance less social security surplus.
B) new debt resulting from a federal budget deficit.
C) the real budget balance.
D) the nominal budget balance.