Chapter 14

What happens to the net public debt if the federal government operates next year with​ a: budget​ deficit? Increases.b. balanced​ budget? Remains unchanged.c. budget​ surplus? Decreases
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
f the federal government has a budget deficit it can finance its spending by selling Treasury bonds
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.
Which of the following is the definition of the public debt? the total value of all outstanding government securities
Which of the following is a reason why the public debt may impose a burden on future​ generations? future taxes may have to be increased to repay the debt
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
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.
Suppose that the federal budget deficit increases. The increase in government borrowing will cause interest rates to rise
Suppose that the federal budget deficit increases. In an open​ economy, this will make U.S. bonds _______ to overseas​ residents, who will buy ________ bonds and ________ U.S.​ exports, and thus the trade deficit will rise. more attractivemoreless
In an open​ economy, if the federal government has a budget​ deficit, the trade balance is more likely to be a deficit.
In​ long-run macroeconomic​ equilibrium, after the economy has fully adjusted to changes in all​ factors, the effect of an increased government budget deficit resulting from higher government spending or lower taxes is no change in equilibrium real​ GDP, and a redistribution of real GDP from private spending to public spending.
In the short run, if the economy is at full employment level of real GDP, an increased government budget deficit resulting from higher government spending or lower taxes is most likely to increase aggregate demand, raising prices and creating an inflationary gap

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