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Practice Quiz
Federal Deficits, Surpluses and the National Debt
1. During the late 1998-2001, federal government budget deficits
a. were completely removed.
b. dropped significantly from a high of $300 billion.
c. remained fairly stable at about $150 billion per year.
d. exceeded $200 billion in each year.
ANS:
a. See Exhibit 2 in the text.
2. The federal government finances a budget deficit by
a. taxing businesses and households.
b. selling Treasury securities.
c. printing more money.
d. reducing its purchases of goods and services.
ANS:
b. The U.S. Treasury borrows by selling Treasury bill (T-bills), notes, and bonds
promising to make specified interest and repay the loan on a given date.
3. In 2009, the national debt was approximately
a. $60 billion.
b. $600 billion.
c. $12 trillion.
d. $20 trillion.
ANS:
c. See Exhibit 5 in the text.
4. The national debt to GDP ratio in 2009
a. was about seven times its size in 1982.
b. was twice as large in 2000.
c. was approximately the same size in 1945.
d. was approximately the same size in 1951.
ANS:
d. See Exhibit 5 in the text.
5. Which of the following countries has the smallest national debt as a percentage of GDP
in 2009?
a. Italy
b. Canada
c. Australia
d. Japan
e. France
ANS:
c. See Exhibit 6 in the text.
6. Which of the following is false?
a. The national debts size decreased steadily after World War II until 1990 and then
increased sharply each year.
b. The national debt increases in size whenever the federal government has a budget
surplus.
c. The national debt is currently about the same size as it was during World War II.
d. All of the above are false.
ANS:
d. All answers are incorrect.
7. In 2009, approximately what percentage of the U.S. national debt was owed to
foreigners?
a. About 2.5 percent.
b. About 30 percent.
c. About 20 percent.
d. About 60 percent.
ANS:
b. See Exhibit 8 in the text.
8. Which of the following own a portion of the national debt?
a. Federal, state, and local governments
b. Private U.S. citizens
c. Banks
d. Foreigners
e. All of the above
ANS:
e. Treasury bills are widely held throughout the public and private sectors both
domestically and overseas.
13. When measured as a percentage of GDP, the U.S. national debt reached its highest
levels as a result of
a. World War II.
b. the Vietnam War.
c. the Reagan defense buildup and tax cuts.
d. the Bush economic recovery program.
ANS:
a. As shown in Exhibit 4 in the text, the national debt reached about 120 percent of GDP
at the end of World War II.
14. The national debt is unlikely to cause national bankruptcy because the
a. national debt can be refinanced by issuing new bonds.
b. interest on the public debt equals GDP.
c. national debt cannot be shifted to future generations for repayment.
d. federal government cannot repudiate the outstanding national debt.
ANS:
a. The federal government can roll over its debt by replacing old bonds with new
bonds.
15. Supply-side economists argue that less government spending
a. will contract the productive side of the economy.
b. will result in more crowing out.
c. causes higher rates of unemployment and inflation.
d. would cause interest rates to increase dramatically.
e. would make more investment capital available at lower rates of interest to the private
sector.
ANS:
e. The crowding-out effect argues that federal government borrowing increase interest
rates, resulting in lower consumption by households and low investment spending by
businesses.