Chapter 19

1.	The public debt is the sum of all previous A. expenditures of the Federal government B. budget deficits of the Federal government C. budget deficits less the budget surpluses of the Federal government D. budget surpluses less the current budget deficit of the Federal government

2.	Which of the following would involve reducing government expenditures and increasing tax rates during a recession? A. an annually balanced budget policy B. functional finance C. a cyclically balanced budget policy D. a policy employing built-in stability

3.	A cyclically balanced budget philosophy is A. procyclical B. countercyclical C. functional finance D. economically neutral

4.

What three factors largely explain why the public debt has increased since 1929? A. interest payments on the public debt, spending for social security, and depreciation of the dollar B. deficit spending to finance a war, effects of automatic stabilizers on the budget during recessions, and tax cuts not offset by spending cuts C. deficit spending caused by depressions, borrowing funds from other nations, and increased government spending to covereconomic problems such as the saving and loan bailout D. interest payments on the public debt, government spending for welfare programs, and the crowding out of investment Spending

5.

Since the 1980s, the public debt relative to GDP has A. increased and interest payments relative to GDP have increased B. decreased and interest payments relative to GDP have decreased C. decreased, but interest payments relative to GDP have decreased D. increased, but interest payments relative to GDP have decreased

6.

To place the public debt in perspective based on the wealth and productive capacity of the economy, it is more meaningful to A. examine its absolute size B. calculate the interest payments on the debt C. measure it relative to the gross domestic product D. compare it to import, exports, and the trade deficit

7.	The public debt of the United States as a percentage of its GDP is A. larger than all other industrial nations B. smaller than all other industrial nations C. less than all other industrial nations except Japan D. greater than some industrial nations but less than others

8.	Foreign individuals and institutions hold about what percentage of the public debt? A. 5% B. 14% C. 23% D. 34%

9.	The accounting procedures the Federal government uses record A. only its assets B. only its debts C. both its assets and debts D. its net worth

10.

Inflation is a tax on the A. holders of the public debt, and it reduces the real size of the public debt B. holders of the public debt, and expands the real size of the public debt C. Federal government, and reduces the real size of the public debt D. Federal government, and expands the real size of the public debt

11.	The public debt cannot bankrupt the Federal government because the Federal government A. has the power to levy taxes B. is able to refinance the debt C. can create money to repay the debt and pay the interest on it D. all of the above

12.

Incurring an internal debt to finance a war does not pass the cost of the war on to future generations because A. the opportunity cost of the war is borne by the generation that fights it B. the government need not pay interest on internally held debts C. there is never a need for government to refinance the debt D. wartime inflation reduces the relative size of the debt

13.

Which would be a consequence of the retirement of the internally held portion of the public debt? A. a reduction in the nation's productive capacity B. a reduction in the nation's standard of living C. a redistribution of the nation's wealth among its citizens D. an increase in aggregate expenditures in the economy

14.

Which of the following is an important consequence of the public debt of the United States? A. It increases incentives to work and invest. B. It transfers a portion of the U.S. output of goods and services to foreign nations. C. It reduces income inequality in the United States. D. It leads to greater saving at every level of disposable income.

15.	A large and growing public debt creates political problems for the Congress and the president to adopt A. an easy money policy B. a tight money policy C. an antirecessionary fiscal policy D. a trade policy calling for increased U.S. exports and decreased U.S. imports

16.

The crowding-out effect of borrowing in the money market to finance an increase in government expenditures A. reduces current private investment expenditures B. decreases the rate at which the privately owned stock of real capital increases C. imposes a burden on future generations D. does all of the above

17.

The crowding-out effect from government borrowing is reduced A. when the economy is operating at less than full employment B. when the expenditures expand human capital in the economy C. when the government's deficit financing improves the profit expectations of business firms D. when any one or more of the above are true

18.

Which is not one of the sources of the concern with the deficits of the Federal government and the growth of the public debt during the past two decades? A. the large increases in the size of the deficits and in the public debt B. the operation of the economy substantially below full employment throughout the decade C. the rising interest costs of the debt D. problems with the balance of trade

19.	Deficits in the early 1990s were primarily increased by A. an increase in spending for social security B. a recession and a bailout of the savings and loan industry C. an increased demand by foreigners for government securities D. an easy money policy of the Federal Reserve

20.

The increased foreign demand for U.S. securities that results from higher interest rates in the United States A. increases the external debts of the United States and the international value of the dollar B. increases the external debts of the United States and decreases the international value of the dollar C. decreases the external debts of the United States and increases the international value of the dollar D. decreases the external debts of the United States and the international value of the dollar

21.	When the international value of the dollar rises, A. U.S. exports tend to increase B. U.S. imports tend to decrease C. U.S. net exports tend to decrease D. U.S. net exports tend to increase

22.

High interest rates in the United States which were related to Federal budget deficits A. contributed to the debt burden of developing nations that traded with the United States B. reduced the flow of funds from foreign nations to the United States C. increased the long-term economic growth and domestic investment of foreign nations that transferred funds to the United States D. enabled the United States to become a major creditor nation

23.

The Deficit Reduction Act of 1993 was legislation passed by Congress and signed by the president; it was designed to A. decrease marginal tax rates on personal income, but increase corporate income taxes and the Federal tax on gasoline B. increase taxes on personal income and corporations and hold all discretionary government spending to 1993 nominal levels C. use fiscal policy to stimulate the sluggish U.S. economy during 1993 D. coordinate fiscal policy with the monetary policy of the Federal Reserve to achieve a budget balance by the year 2010

24.	A serious proposal to eliminate annual Federal budget deficits that Congress has recently considered is A. the changing of accounting procedures B. a balanced-budget amendment C. a moratorium on debt payments D. a reduction in interest rates

25.	The process by which saving is transferred to spenders is A. public investment B. functional finance C. debt creation D. crowding out

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