Chapter 14

In 20152015​, government spending is ​$3.93.9 ​trillion, and taxes collected are ​$3.43.4 trillion. What is the federal government deficit in that​ year? .5
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit because a higher deficit creates a higher public debt.
Which of the following statements is true when considering budget deficits and the national​ debt? The national debt is a stock variable and a federal budget deficit is a flow variable.
The federal government has its best opportunity to lower its national debt when it has a budget surplus.
In 2005 national government spending is ​$2.00 trillion and tax collections are ​$2.00 trillion. This​ government, in​ 2005, experienced a balanced budget
If the federal government has a budget deficit it can finance its spending by selling treasury bond
Which of the following statements is true regarding the national debt and federal government​ deficits? There is a positive relationship between the national debt and a federal government budget deficit.
Since the​ 1940s, more often than​ not, the U.S. federal government has run a budget deficit.
Since​ 2001, more often than​ not, the U.S. federal government has run a budget deficit.
Which of the following is a reason for this resurgence in federal government budget​ deficits? Tax revenue not keeping pace with growth in spending.
Since 1970 the U.S.​ government’s budget deficit as a percentage of real GDP has averaged approximately​ 3%.
Suppose that an particular economy has a real GDP of 15.0 trillion in 2004. It grows to 16.5 trillion in 2005.​ Meanwhile, the national debt was 10 trillion in 2004. In 2005 the federal government ran a budget deficit of 1.0 trillion, which was totally financed by borrowing.Given this set of circumstances the national debt as a percentage of real GDP has remained constant
​Directions: click on the graph in the window on the right and select Multiple Time Series to graph the U.S. gross and net federal debt to GDP ratio for the years​ 1940-2005. For Y1 select Gross Federal​ Debt, percentage of GDP and for Y2 select Net Federal​ Debt, percentage of GDP. Roll your cursor over the plotted lines to identify the data. Use the figure to help determine which of the following statements are true. Federal U.S. gross and net debt to GDP ratios follow similar patterns. Although the difference between the two was very small during the World War II​ years, it has been steady from the early​ 1950’s to the late​ 1980’s, and has been increasing since the late​ 1980’s. ​ Therefore, the percentage of U.S. federal debt held by federal government agencies compared to the total public debt outstanding has been​ increasing, starting in the early​ 1990’s.
​Directions: click on the graph in the window on the right and select Multiple Time Series to graph the U.S. gross and net federal debt levels for the years​ 1940-2005. For Y1 select Gross Federal​ Debt, millions of dollars and for Y2 select Net Federal​ Debt, millions of dollars. Roll your cursor over the plotted lines to identify the data. Use the figure to help determine which of the following statements are true. U.S. officials responsible for fiscal policy must carefully study the federal debt. They​ should, however, examine the issue more​ thoroughly, considering additional information and relevant​ data, they particularly should focus on the net debt to GDP ratio.
​Directions: click on the graph in the window on the right and select Time Series to graph the U.S. public​ (federal) net outstanding debt as a percentage of GDP for the years​ 1940-2005. For Y Axis1 select Net Federal​ Debt, percentage of GDP. Use the figure to help determine which of the following statements are true. As a result of the exceptionally large increases in U.S. government military expenditures in the first half of the​ 1940’s, that were needed to win World War​ II, the net U.S. public debt to GDP ratio increased​ substantially, surpassing​ 100%. Since the late​ 1950’s however, U.S. net federal debt to GDP ratio has fluctuated within a relatively small bend around the​ 40% line.
If a government spends more than it receives during a​ year, then during this year it experiences a​ ________, and if it spends less than it​ receives, it experiences a​ ________. budget​ deficit; budget surplus
The total value of all outstanding federal government securities is the public debt
Since​ 2001, the average annual government budget deficit has exceeded 10 percent of GDP. false
Whenever the federal government spends more than it receives during a given​ year, it operates with a ________. If federal government spending exactly equals government​ revenues, then the government experiences a _______. If the federal government collects more revenues than it​ spends, then it operates with a _________. budget deficit/ balanced budget/ budget surplus
The federal budget deficit is a​ flow, whereas accumulated budget deficits represent a ______, called the public debt. stock
The federal budget deficit expressed as a percentage of GDP rose to around 6 percent in the early 1980s. Between 1998 and​ 2001, the federal government experienced ___________, but since then its budget has once more been in ___________. budget surplus/ deficit
What is the relationship between the gross public debt and the net public​ debt? The net public debt only included government debt held by the public.
The accumulation of borrowing by all federal government agencies is referred to as the gross public debt.
When considering the gross public​ debt, one can argue that it is overstated because the federal government owes itself money.
Which of the following statements is true when considering the expenditures of the U.S. federal​ government? The expenditures are used for all these purposes.
Imagine that the net public debt of a​ country’s government was currently​ $6 trillion. The debt was entirely held or owned by the citizens of that country. In other​ words, there is no external debt. If the government were to pay off the entire​ $6 trillion of debt today by the use of​ taxes, which of the following statements is true​? Both of these statements are true.
Suppose the federal government wishes to purchase goods and services valued at​ $200 billion today and finances these expenditures by borrowing. According to some​ economists, this will lead to _________ level of national consumption and __________ level of national savings than if the expenditure had been financed by increased taxes. higher/lower
If the economy is operating at full employment and the federal government increases its​ borrowing, investment will be crowded out.
Suppose the federal government wishes to purchase goods and services valued at​ $200 billion today and finances these expenditures by raising taxesraising taxes. According to some​ economists, this will lead to a _________ level of national consumption and ___________ level of national savings than if the expenditure had been financed by selling bonds (borrowing). lower/ higher
​Directions: click on the graph in the window on the right and select Multiple Time Series to graph U.S. federal expenditures and receipts in billions of constant 2000 dollars for the years​ 1940-2005. For Y1 select U.S. federal expenditures and for Y2 select U.S. federal receipts. Roll your cursor over the plotted lines to identify the data. According to the​ figure, the U.S. federal government has generated far more deficits than surpluses during the period​ 1940-2005.
The net public debt has continually risen since the year 2000. true
The net interest cost of the public debt as a percentage of GDP has continually risen since 1940. false
More than 50 percent of U.S. public debt is owned by foreign residents. true
If the rate of return on public investments exceeds the interest rate paid on the bonds issued to finance the​ investments, present and future generations will be economically better off.
When we subtract the funds that government agencies borrow from each other from the _______ public​ debt, we obtain the __________ public debt. gross/ net
The public debt may impose a burden on ________ generations if they have to be taxed at higher rates to pay for the __________ ​generation’s increased consumption of governmentally provided goods. In​ addition, there may be a burden if the debt leads to crowding out of current​ investment, resulting in ______ capital formation and hence a ________ economic growth rate. future/current/less/lower
If foreign residents hold a significant part of our public​ debt, then we no longer​ “owe it to​ ourselves.” If the rate of return on the borrowed funds is ________ than the interest to be paid to foreign​ residents, future generations can be made better off by government borrowing. Future generations will be worse​ off, however, if the opposite is true. higher
If federal budget deficits ​increase, then a part of that deficit will be financed by foreign dollar​ holders, who will buy fewer U.S.​ exports, thus increasing the U.S. trade deficit.
Suppose that the economy is experiencing the​ short-run equilibrium position depicted at point A in the diagram to the right. Then the government raises its spending and thereby runs a budget deficit . in an effort to boost equilibrium real GDP to its​ long-run equilibrium level of​ $14 trillion​ (in base-year​ dollars). ​1.) Using the line drawing tool​, show this change. Properly label your new line.​2) Using the point drawing tool​, identify the new long run equilibrium. Label this point​ ‘E’.
A trade deficit implies that the dollar value of imports exceeds the dollar value of exports.
Generally a larger US trade deficit is accompanied by a a larger US federal government budget deficit.
Suppose the dollar value of imports to the U.S. exceed the dollar value of exports from the US. This implies that foreigners are holding an excess supply of dollars.
If foreigners have an excess supply of dollars after trading goods and services they will likely buy more U.S. Treasury bonds.
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this​ deficit, the U.S. government must pay a higher rate of interest on the bonds it sells.
As the interest rate or yield on U.S. bonds​ increases, foreigners buy more U.S. bonds and fewer U.S. goods and services.
From the end of WWII through 1983 the U.S. government had consistently experienced a trade surplus.
​Directions: click on the graph in the window on the right and select Time Series to graph the U.S. federal trade deficit​ (surplus) to GDP ratio for the years​ 1970-2005. For Y Axis 1 select U.S. federal government​ deficit, percent of GDP. Use the figure to help determine which of the following statements are true. ​1998-2001 are the only years that the U.S. federal government recorded surpluses.
Directions: click on the graph in the window on the right and select Multiple Time Series to graph the U.S. budget deficit and U.S. trade deficit for the years​ 1970-2004. For Y1 select U.S. Federal Budget Deficit or Surplus and for Y2 select U.S. Trade Balance Surplus or Deficit​ (both goods and​ services). Roll your cursor over the plotted lines to identify the data. The plotted series show that while there were a few small​ sub-periods during which the two deficits moved in opposite​ directions, the two deficits exhibit​ co-movement. The positive relationship between the US government budget and trade deficits is supported because large U.S. government deficits are mainly financed through increases in government debt​ (bonds). This results in higher U.S. interest rates which in turn attract capital to the U.S. This in turn causes an appreciation of the U.S. dollar. Dollar appreciation makes U.S. exports more expensive and U.S. imports​ cheaper, and​ thus, a larger U.S. trade deficit.
A natural consequence of the government continually spending more than what it takes in through tax​ receipts, ceteris​ paribus, is that the government takes up a larger percentage of the economic activity.
Suppose that the economy is currently operating at full employment as depicted in the graph to the right.Using the line drawing tool​, show the effect on the economy if it were to run a federal budget deficit due to expansionary fiscal policy. Properly label this line.Carefully follow the instructions​ above, and only draw the required objects. deficit
Smaller trade deficits tend to accompany larger government budget deficits. false
Other things​ equal, interest rates will​ ________ whenever there is​ ________ in deficits financed by an increase in borrowing. rise/ increase
In the presence of a​ short-run recessionary​ gap, government deficit spending can influence both real GDP and employment. true
In the long​ run, higher government budget deficits resulting from increased government spending​ and/or tax cuts will do all of the following except increase equilibrium real GDP.
To obtain the dollars required to purchase newly issued U.S. government​ bonds, foreign residents must sell ______ goods and services in the United States than U.S. residents sell abroad.​ Thus, U.S. imports must _______ U.S. exports. For this​ reason, the federal budget deficit and the international trade _________ tend to be related. more/exceed/deficit
Higher government deficits arise from increased government spending or tax​ cuts, which raise aggregate demand.​ Thus, larger government budget deficits can raise real GDP in a _________ gap situation. If the economy is already at the​ full-employment level of real​ GDP, however, higher government deficits can only temporarily push equilibrium real GDP ______ the​ full-employment level. recessionary/ above
In the long​ run, higher government budget deficits cause the equilibrium price level to rise but fail to raise equilibrium real GDP above the​ full-employment level.​ Thus, the​ long-run effect of increased government deficits is simply a redistribution of real GDP per year from ______ provided goods and services to ________ provided goods and services. privately/ government

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