Government Deficits and the National Debt

Question 1

Deficit spending is paid for by

Abusiness investment being less than savings

Bconsumer spending

Cimports exceeding exports

Dissuing new debt or government bonds

Ethe central bank

Question 2

In year 1, the government spent more than it collected in tax revenue. In year 2, the government increased spending more with no other budget changes. Which of the following is the most likely result from year 1 to year 2?

AThe budget surplus would decrease.

BThe budget surplus would increase.

CThe budget deficit would increase.

DThe national debt would decrease.

EThe budget deficit would decrease.

Question 3

If a government with a budget deficit sees its tax revenue decrease from one year to the next while its spending increases, what will happen to the budget deficit and national debt year-over-year accumulation?

AThe budget deficit will increase, and the national debt will not change.

BThe budget deficit will decrease, and the national debt will increase.

CThe budget deficit and national debt will both increase.

DThe budget deficit will not change, and the national debt will increase.

EThe budget deficit and national debt will both decrease.

Question 4

Which of the following would necessarily entail a government budget surplus?

AA reduction in government spending with the same tax revenue

BAn increase of taxes with flat spending

CAn inflationary gap with no government intervention

DTax revenues exceeding the sum of spending and transfer payments

EAn increase in the national debt

Question 5

The ________ is annual and the ________ is continuous year-over-year accumulation.

Abudget; national debt

Bnational debt; budget

CGDP; budget

Dbudget; GDP

Emonetary policy; fiscal policy