Chapter 13 – Fiscal Policy, Deficits, and Debt
140. Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in
the above economy would:
141. Other things equal, an increase of corporate bonds from $140 billion to $150 billion in
the above economy would:
142. Suppose the Federal government had budget deficits of $40 billion in year 1 and $50
billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4.
Also assume that it used its budget surpluses to pay down the public debt. At the end of these
four years, the Federal government’s public debt would have:
Chapter 13 – Fiscal Policy, Deficits, and Debt
143. Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120
billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also
assume that it used its budget surpluses to pay down the public debt. At the end of these four
years, the Federal government’s public debt would have:
Answer the question using the following budget information for a hypothetical economy.
Assume that all budget surpluses are used to pay down the public debt.
144. Refer to the above data. If year 1 is the first year of this nation’s existence and year 6 is
the present year, this nation’s public debt is:
Chapter 13 – Fiscal Policy, Deficits, and Debt
145. Refer to the above data. The budget deficit in year 3 is:
146. Refer to the above data. If year 1 is the first year of this nation’s existence and year 4 is
the present year, the public debt as a percentage of GDP in year 4 is:
147. Refer to the above data. A budget surplus occurred in year:
Chapter 13 – Fiscal Policy, Deficits, and Debt
149. Refer to the above data. As a percentage of GDP, the:
150. Which of the following is not a significant contributor to the U.S. public debt?
Chapter 13 – Fiscal Policy, Deficits, and Debt
151. Recessions have contributed to the public debt by:
152. Which of the following statements is correct?
153. In 2009, the U.S. Federal debt held by the public was:
Chapter 13 – Fiscal Policy, Deficits, and Debt
154. In 2009, the U.S. public debt was about:
155. The average tax rate required to service the public debt is roughly measured by:
156. What percentage of the U.S. public debt is held by Federal agencies and the Federal
Reserve?
Chapter 13 – Fiscal Policy, Deficits, and Debt
157. Approximately what percentage of the U.S. public debt is held by foreign individuals and
institutions?
158. The portion of the public debt held outside Federal agencies and the Federal Reserve is:
159. The largest proportion of the U.S. public debt is held by:
Chapter 13 – Fiscal Policy, Deficits, and Debt
160. In 2009, about ____ percent of the U.S. public debt was held by people and institutions
abroad.
161. In 2009, about ____ percent of the U.S. public debt was held by the Federal government
and Federal Reserve.
162. To say that “the U.S. public debt is mostly held internally” is to say that:
Chapter 13 – Fiscal Policy, Deficits, and Debt
163. Payment of interest on the U.S. public debt:
164. The most likely way the public debt burdens future generations, if at all, is by:
165. Other things equal, the stock of capital inherited by future generations is likely to be
smaller when government spending:
Chapter 13 – Fiscal Policy, Deficits, and Debt
166. The crowding-out effect suggests that:
167. The Federal government has a large public debt that it finances through borrowing. As a
result, real interest rates are higher than otherwise and the volume of private investment
spending is lower. This illustrates the:
168. The real burden of an increase in the public debt:
Chapter 13 – Fiscal Policy, Deficits, and Debt
169. Which one of the following might offset a crowding-out effect of financing a large
public debt?
Chapter 13 – Fiscal Policy, Deficits, and Debt
170. Refer to the above diagram. Initially assume that the investment demand curve is ID1.
The crowding-out effect of a large public debt would be shown as a(n):
171. Refer to the above diagram. Initially assume that the investment demand curve is ID1.
Which of the following effects of financing a large public debt might shift the investment
demand curve from ID1 to ID2, wholly offsetting any crowding-out effect?
172. Which of the following is the best example of public investment?
Chapter 13 – Fiscal Policy, Deficits, and Debt
173. Which of the following is not considered a legitimate concern of a large public debt?
174. Which of the following is considered a legitimate concern of a large public debt?
175. (Last Word) The combined cost of Social Security and Medicare programs was what
percent of U.S. GDP in 2008?
Chapter 13 – Fiscal Policy, Deficits, and Debt
176. (Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries
was ______; by 2040 it is projected to be _________.
177. (Last Word) Which of the following would not help to relieve the Social Security and
Medicare shortfalls?
178. Expansionary fiscal policy is so-named because it involves an expansion of the nation’s
money supply.
Chapter 13 – Fiscal Policy, Deficits, and Debt
179. If the MPC in the economy is .75, government could shift the aggregate demand curve
rightward by $30 billion by cutting taxes by $10 billion.
180. A contractionary fiscal policy shifts the aggregate demand curve leftward.
181. Demand-pull inflation can be restrained by increasing government spending and
reducing taxes.
182. Built-in stability is synonymous with discretionary fiscal policy.
Chapter 13 – Fiscal Policy, Deficits, and Debt
183. The actual budget may be in deficit while the cyclically-adjusted budget is in surplus.
184. An increase in the cyclical deficits will automatically increase the cyclically-adjusted
budget deficit.
185. Tax revenues automatically increase during economic expansions and decrease during
recessions.
186. The operational lag of fiscal policy refers to the time that elapses between the beginning
of a recession or inflation and the certain awareness that it is actually happening.
Chapter 13 – Fiscal Policy, Deficits, and Debt
187. The crowding-out effect refers to the possibility that deficit spending may motivate
people to increase their saving in anticipation of higher future taxes.
188. Fiscal policy is mainly undertaken by the Federal Reserve.
189. Tax increases and government spending cuts by state governments during recessions
often reduce the expansionary impact of fiscal policy by the Federal government.
190. Permanent tax reductions are more likely to be expansionary than temporary tax
reductions.
Chapter 13 – Fiscal Policy, Deficits, and Debt
191. As measured by the cyclically-adjusted budget, the U.S. government engaged in a
contractionary fiscal policy in 2005 and 2006.
192. Financing wartime expenditures by increasing internally held public debt permits a
nation to defer a part of the economic cost of war.
193. It is more meaningful economically to measure the public debt relative to the GDP than
to measure it in absolute terms.
194. The United States has experienced both budget surpluses and deficits since 2000.
Chapter 13 – Fiscal Policy, Deficits, and Debt
195. The public debt is the accumulation of all deficits and surpluses that have occurred
through time.
196. The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S.
savings bonds.
197. The crowding-out effect of the public debt may be dampened if the investment-demand
curve is shifting to the right.