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Federal Government Federal Social State and local agencies Security governments 13% 15% 3% Federal reserve 15% 22% U.S. Private Sector 33% Foreignersa. What percentage of
Federal Government Federal Social State and local agencies Security governments 13% 15% 3% Federal reserve 15% 22% U.S. Private Sector 33% Foreignersa. What percentage of U5. debt do state and local governments hold? percent b. If the interest rate on US. Treasury debt is 3 percent, how much interest do state and local governments collect each year from the US. Treasury? (Assume a total debt of $21 trillion.) $ billion $300 200 Budget surpluses 100 -100 -200 -300 -400 Budget deficits -500 BILLIONS OF DOLLARS -600 -700 -800 -900 -1000 -1100 -1200 -1300 -1400 -1500 1990 1992 1994 1995 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016Since 1994, in how many years has the federal budget had a surplus? Instructions: Enter your response as e 1whole number. E Breads) Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $5 trillion while raising only $4.5 trillion worth of taxes. Instructions: Enter your responses rounded to one decimal place. a. What will be the government's deficit? $ :| billion b. If the government finances the deficit by issuing bonds, what amount of bonds will it issue? $ :| billion c. At a 4 percent rate of interest, how much interest will the government pay each year? 55 billion c. At a 4 percent rate of interest, how much interest will the government pay each year? billion d. Add the interest payment to the government's $5 trillion expenditures for the next year, and assume that tax revenues remain at $4.5 trillion. In the second year, compute the (i) Deficit: $ billion (ii) Amount of new debt (bonds) issued to finance the deficit in the second year: $ billion (iii) Total debt at the end of the second year: $ billion (iv) Debt service requirement: $ billionDeficit spending occurs when Multiple Choice O Government spending becomes greater than the tax revenues collected. O Consumers spend less than their income. O Net export spending alters macroeconomic outcomes. O Investment spending declines.External debt of the United States refers to Multiple Choice O The ownership of nongovernment debt by the government. O The debt of nongovernment organizations. O U.S. government debt held by foreigners. O Combined foreign debt held by sources outside the U.S. government.Crowding out is most likely to occur when the federal government Multiple Choice O Runs a surplus and pays off part of the debt. O Has a balanced budget and refinances a portion of the debt that matures. O Runs a deficit and sells bonds to make up the difference. O Runs a deficit and raises taxes to generate more revenue.The use of government taxes and spending to alter economic outcomes is known as Multiple Choice O Incomes policy. O Monetary policy. O Fiscal policy. O Foreign trade policy.Automatic stabilizers tend to stabilize the level of economic activity because they Multiple Choice O Increase spending during recessions and reduce spending during inflationary periods. O Control the rate of change in prices. O Increase the size of the multiplier. O Are changed quickly by Congress.Which of the following required all new federal government spending initiatives to be offset with increased taxes or cutbacks in other programs? Multiple Choice O Balanced Budget and Emergency Deficit Control Act of 1985. O The Budget Enforcement Act of 1990. O Gramm-Rudman-Hollings Act of 1985. O The Federal Deficit Act of 1982.Deficit spending results whenever the government Multiple Choice O Issues bonds to finance the debt. O Uses borrowed funds to finance expenditures that exceed tax revenue. O Refinances the debt. O None of the choices are correct.B C PUBLIC SECTOR OUTPUT D E F G3 PRIVATE SECTOR OUTPUT H1 H2 HB PRIVATE SECTOR OUTPUT Figure 12.1 Multiple Choice O Cto point E.Figure 12.1 Multiple Choice O Cto point E. O Cto point A. O Cto point F. O A to point C.In contrast to the structural deficit, the cyclical deficit reflects Multiple Choice O Fluctuations in economic activity. O Changes in discretionary fiscal policy. O Fiscal policy decisions. O Changes in the "full-employment" deficit.Which of the following is an argument against balancing the federal budget? Multiple Choice O The economy will self-adjust so deficit spending is not necessary. O An increase in government spending and taxes by the same amount does not affect income. O Doing so may prevent the government from pulling the economy out of recession. O None of the choices are correct.The national debt is Multiple Choice O The accumulation of all annual deficit and surplus flows. O The amount by which government spending exceeds tax revenues for a given year. O A fairly risky asset that pays interest. O The amount by which tax revenues exceed government spending for a given year.For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy, the actual deficit is divided into which of the following components? Multiple Choice O Structural and cyclical deficits. O C, I, G, X, and M. O Frictional and seasonal deficits. O Automatic stabilizers and autonomous consumption.Much of each year's federal budget is considered "uncontrollable" because Multiple Choice O It must be spent for purchases, as opposed to transfer payments. O Most of the current revenues and expenditures are the result of decisions made in prior years. O It is determined by decision makers who do not have the power to change spending and taxes. O None of the choices are correct.In contrast to the structural deficit, the cyclical deficit reflects Multiple Choice O Changes in the "full-employment" deficit. O Fluctuations in economic activity. O Fiscal policy decisions. O Changes in discretionary fiscal policy.In order to reduce the U.S. debt, Multiple Choice O Foreign governments must lend more money to the U.S. government. O The government should spend less than it collects in tax revenues. O There will be a transfer of revenue from bondholders to taxpayers. O The government must use deficit spending.The cost of servicing the debt may increase if Multiple Choice O The debt shrinks. O The debt is held internally. O Deficits become smaller. O Interest rates rise.If the structural deficit is zero, Multiple Choice O If the economy enters a recession, a budget surplus will result, ceteris paribus. O If the economy goes above full employment, the cyclical deficit will get larger. O At full employment, the budget is balanced. O Federal tax revenue equals federal government expenditures at any equilibrium GDP.The Gramm-Rudman-Hollings Act of 1985 created a Multiple Choice O Deficit ceiling. O Prohibition against external financing of the debt. O Debt ceiling. O Mandated balanced budget by 2005.If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the Multiple Choice O Cyclical deficit is $80 billion. O Structural deficit is $320 billion. O Structural deficit is $80 billion. O Cyclical deficit is $120 billion.The largest single holder of the U.S. national debt after the U.S. government is Multiple Choice O The foreign sector. O The private sector. O U.S. businesses. O None of the choices are correct
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