Chapter 14

In which decade did the United States begin experiencing large trade deficits? 1980’s
How does a government budget deficit occur? A government’s spending exceeds its tax revenues
Which of the following is true about how trade deficits and government budget deficits are related The government budget deficit leads to higher interest rates that will lead to a trade deficit.
A trade surplus occurs when None of these
When foreign residents buy U.S. Treasury securities to finance the budget deficit we can also anticipate an increase in the trade deficit.
Which of the following statements about the budget deficit is true? It is a flow variable.
In the long run, a higher government budget deficit causes a decrease in private spending while equilibrium real GDP remains unchanged.
The difference between the gross public debt and the net public debt is that the gross public debt includes government interagency borrowing while the net public debt does not.
Why is it unlikely that tax increases will be the way to eliminate current U.S. federal budget deficits? All of these
If the government spends less than what it receives in taxes during a given interval, then the result is a government budget surplus.
Other things being equal, during a period when the federal government issues more Treasury securities to borrow funds, the flow of government expenditures during that period must exceed the flow of tax revenues.
Which of the following is true of the U.S. trade balance and the federal government budget? In most years since the 1970s, both have been in deficit
What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap? Aggregate demand increases, and the gap closes
A government budget deficit is an excess of government spending over government revenues during a given time period.
In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause a reduction in real GDP with falling prices if the economy was below or at full employment.
Other things being equal, what is the effect of deficit spending on interest rates? Interest rates rise
When government revenues exceed government outlays in a particular year, this is called a budget surplus.
If the government spends exactly what it receives in taxes during a given interval, then the result is a balanced budget
The total value of all outstanding federal government securities is called the public debt
According to the text, approximately what percentage of U.S. net public debt is held by foreign residents? 50%
If the government’s spending exactly equals its revenues during a budget year, that government is balancing its budget.
Stocks change ________ whereas flows relate to ________. between points in time; changes within a given time period
The difference between the gross public debt and the net public debt is all government interagency borrowing.
Net public debt is the sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions
The largest expenditure component of the federal budget is spending on entitlement programs.
How does the federal government finance a budget deficit? It borrows funds by selling Treasury bonds
A federal deficit of $300 billion means that the government is spending $300 billion a year more than it is collecting in taxes.
A government budget surplus is an excess of revenues over government spending
In the long run, what effect does a government’s deficit spending have on equilibrium real Gross Domestic Product (GDP)? Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.
Suppose that the government of Summerfield spends $2 trillion in 2013 and receives tax revenues of $1.5 trillion. Which of the following is true? Summerfield has a budget deficit of $0.5 trillion.
The total value of all outstanding federal government securities is none of these
One of the long-run effects of higher government budget deficits is an increase in the government’s share of the nation’s economic activity.
Are federal budget deficits related to trade deficits? Yes. As deficit spending goes up, it is likely government borrowing will, too. Then foreign residents who lend funds to the U.S. government have less to spend on our goods, so U.S. exports will fall.
Guaranteed benefits under government programs such as Social Security or Medicare are called entitlements
Which of the following statements has usually held true about the relationship between the trade deficits and government budget deficits? There is a positive relationship between trade deficits and budget deficits.
In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will reduce spending on privately provided goods and services.
In the long run, higher government budget deficits will lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services.
The difference between net public debt and gross public debt is all government interagency borrowing.
Net public debt is gross public debt minus all government interagency borrowing.
When the Social Security Administration holds U.S. Treasury Bonds interagency borrowing has occurred and the government owes itself
Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits. positive
Are federal budget deficits related to trade deficits? Yes. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.
Which of the following is true of the relationship between U.S. trade deficits and federal government budget deficits? Increases in the budget deficit tend to be associated with increases in the trade deficit.
Gross public debt minus all government interagency borrowing is net public debt.
Today, U.S. government spending on entitlements represents ________ of the total federal budget. nearly 60 percent
Which is the fastest growing component of the federal government budget? Spending on entitlements
Which of the following is a stock variable? All of these
The largest component of U.S. federal spending that contributes to the U.S. government budget deficit is entitlements
If the government spends more than it receives in taxes during a given interval, then the result is a government budget deficit
If the public debt increased by the same amount each year during the past three years, then the U.S. Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three years.
A government balanced budget is The demand for credit increases while the supply of credit remains constant.
In the current year, a nation’s government spending equals $1.5 trillion and its revenues are $1.9 trillion. Which of the following is true? This nation has a current year budget surplus of $0.4 trillion.
Which of the following is NOT an example of a flow variable? capital shock
The amount of funds the Social Security system has loaned the federal government is excluded from the net public debt.
According to the text, the net public debt to Gross Domestic Product (GDP) ratio is currently about 60%
When government spending exceeds government revenues during a given period of time, a budget deficit exists.
Historical evidence seems to indicate that budget and trade deficits generally move in the same direction.

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