Can I please get these questions answered?

1. What is one FALSE concern the book mentions?__________________________

2. What is one of the "substantive issues" (REAL) concerns? __________________

False Concerns You may wonder if the large public debt might bankrupt the United States or place a tremendous burden on your children and grandchildren. Fortunately, these are largely false concerns. People were wondering the same things 50 years ago! Bankruptcy The large U.S. public debt does not threaten to bankrupt the federal government or leave it unable to meet its nancial obligations There are two main reasons: renancing and taxation. Renancing As long as lenders view the U.S. public debt as manageable and sustainable, the public debt is easily renanced. As portions of the debt come due each month, the government does not cut expenditures or raise taxes to provide the funds required. Rather, it renances the debt by selling new bonds and using the proceeds to pay off the maturing bonds. The new bonds are in strong demand because lenders obtain a tradable security that (unlike other assets such as stocks, corporate debt, and real estate) is considered nearly riskless since there is virtually zero chance that the U.S. government would default on its debt payments. Of course, renancing could become an issue with a high enough debt-toGDP ratio. Some countries, including Greece, have encountered this problem. High and rising ratios in the United States might raise fears that the U.S. government might be unable to pay back loans as they come due. But this is a false concern for the United States, given the U.S. economy's strong long-term growth prospects and how modest the U.S. debt-toGDP ratio is as compared with those of other countries (see Global Perspective 13.1). Taxation Financially distressed private households and corporations cannot extract themselves from their nancial difculties by taxing the public. If their incomes or sales revenues fall short of their expenses, they can indeed go bankrupt. But the federal government does have the option of imposing new taxes or increase existing tax rates to nance its debt. Such tax hikes may be politically unpopular and may weaken incentives to work and invest, but they are a means of raising funds to nance the debt. Burdening Future Generations In 2018, public debt per capita was $65,709. Was each child born in 2018 handed a $65,709 bill from the federal government? Not really. The public debt does not impose as much of a burden on future generations because the United States owes a substantial portion of the public debt to itself. U.S. citizens and institutions (banks, businesses, insurance companies, governmental agencies, and trust funds) own about 71 percent of the U.S. government securities. Although that part of the public debt is a liability to Americans (as taxpayers), it is simultaneously an asset to Americans (as holders of Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds). To eliminate the American-owned part of the public debt would require a gigantic transfer payment from Americans to Americans. Taxpayers would pay higher taxes, and debt holders would receive an equal amount for their U.S. government securities. Purchasing power in the United States would not change. Only the repayment of the 31 percent of the public debt owned by foreigners would negatively impact U.S. purchasing power. The public debt increased sharply during the Second World War. But the decision to nance military purchases through the sale of government bonds did not shift the economic burden of the war to future generations. The economic cost of the Second World War consisted of the civilian goods society had to forgo in shifting scarce resources to war goods production. Regardless of whether society nanced this reallocation through higher taxes or through borrowing, the real economic burden of the war would have been the same. That burden was borne almost entirely by those who lived during the war. They were the ones who did without a multitude of consumer goods to enable the United States to arm itself and its allies. The next generation inherited the debt from the war, but it also inherited an equal amount of government bonds that would pay m them cash in future years. In addition, it inherited the enormous benets from the victorynamely, preserved political and economic systems at home and the \"export\" of those systems to Germany, Italy, and Japan. Those outcomes enhanced postwar U.S. economic growth and helped raise the standard of living for future generations of Americans. Substantive Issues Although the preceding issues relating to the public debt are false concerns, several actual concerns do exist. Income Distribution The ownership of government securities is highly uneven. Some people own much more than the $65,709per-person portion of government securities; other people own less or none at all. In general, the ownership of the public debt is concentrated among wealthier groups. While the overall federal tax system is progressive, interest payments on the public debt do mildly increase income inequality. Income is transferred from people who, on average, have lower incomes to the higher-income bondholders. If greater income equality is one of society's goals, then this redistribution is undesirable. Incenves The current public debt necessitates annual interest payments of $371 billion. With no increase in the size of the debt, that interest charge must be paid out of tax revenues. Higher taxes may dampen incentives to bear risk, to innovate, to invest, and to work. So, in this indirect way, a large public debt may impair economic growth and therefore impose a burden of reduced output (and income} on future generations. Foreign-Owned Public Debt The 29 percent of the U.S. debt held by foreign citizens, foreign businesses, and foreign governments {including foreign central banks) is an economic burden to Americans. Because we do not owe that portion of the debt \"to ourselves," the payment of interest and principal on this external public debt enables foreigners to buy some of our output. In return for the benets derived from the borrowed funds, the United States transfers goods and services to foreign lenders. However, Americans also own debt issued by foreign governments, so payment of principal and interest by those governments transfers some of their goods and services to Americans. Crowding-Out Effect Revisited A potentially more serious problem is the nancing (and continual renancing) of the large public debt. which can transfer a real economic burden to lture generations by passing onto them a smaller stock of capital goods. This possibility involves the previously discussed crowding-out effect: the idea that public borrowing drives up real interest rates, thereby reducing private investment spending. If public borrowing happened only during recessions, crowding out would not likely be much of a problem. Because private investment demand tends to be weak during recessions. any increase in interest rates during a recession would at most cause only a small reduction in investment spending. In contrast, the need to continuously nance a large public debt may be more troublesome. Continuous nancing implies having to borrow large amounts of money when the economy is near or at its fullemployment output. Because private investment spending is strong near economic peaks, any increase in interest rates at or near a peak may result in a substantial decline in private investment spending. If the amount of current investment crowded out is extensive, future generations will inherit an economy with a smaller production capacity and, other things equal, a lower standard of living