Chapter Thirteen: Module Quiz -- Budget Deficits and the National Debt

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  1. Which of the following statements about budget deficits and the national debt is correct?

      The U.S. budget deficit for 2005 is higher relative to size of the economy than any other time in our nation's history.
      The budget deficit is the total amount of indebtedness of the federal government at any point in time while the national debt is the amount by which federal government outlays exceed its revenues in a given year.
      The national debt is the total amount of indebtedness of the federal government at any point in time while the budget deficit is the amount by which federal government outlays exceed its revenues in a given year.
      The budget deficit has been in the trillions of dollars since the late 1980s.
      None of the above

  2. The approximate size of the total national debt currently is more than

      $75 billion
      $107 billion
      $8.4 trillion
      $19.2 trillion
      $24.7 trillion

  3. The U.S. budget deficit may be overstated (i.e. seem too large) for all the following reasons except

      Much of the debt is owned by the federal government itself.
      The size of the deficit depends on the rate of population growth.
      Even though our deficit is large, so is our economy's level of output.
      Federal government accounting rules do not separate current expenditures from capital expenditures.

  4. Recovery from recessions tends to make budget deficits decrease because

      tax revenues rise
      government spending for welfare programs increases
      the nation's unemployment rate rises
      all of the above

  5. The portion of the deficit that is not attributable to the business cycle is called

      the cyclical deficit
      the structural deficit
      the national debt
      the actual deficit

  6. Crowding out of private investment occurs when

      the economy goes into recession
      the government increases taxes, reducing investment funds
      the government competes for funds with the private sector, driving up interest rates
      population growth overcrowds our cities

  7. Of the choices listed below, the biggest holder of the U.S. national debt is

      banks
      pension holders
      the federal government
      foreigners

  8. Which of the following are possible costs of running large deficits?

      crowding out
      income redistribution from taxpayers to bond holders
      a net burden on future generations for the foreign portion of the debt
      leads to a stronger dollar and larger trade deficits
      All of the above

  9. If current trends continue, the federal government will default on its debt in the next ten years.

      True
      False

  10. Ultimately, the ability of any government to service its debt depends on the strength of its economy.

      True
      False
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