1 Chapter 23 Tutorial Federal Deficits and the National Debt ©2000 South-Western College Publishing

2 1. During the late 1990’s, 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. B.

3 65 $-350 $ $-250 $-200 $-150 $-100 $ Deficit 95 Federal Budget Surpluses and Deficits Billions of dollars 60 Surplus $+50 00

4 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. 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.

5 3. In 1998, the national debt was approximately a. $60 billion. b. $600 billion. c. $6 trillion. d. $5 trillion. C.

Year $1 $2 $3 $4 $5 $6 National debt The National Debt 00 Trillions of dollars

7 4. The national debt a. doubled between 1950 and 1980, and by 1990, it was over four times its size in b. doubled between 1950 and 1980 and doubled again between 1980 and c. stayed at approximately the same amount between 1950 and 1980 and doubled between 1980 and d. was four times larger in 1980 than it was in 1950 and then doubled between 1975 and A.

Year $1 $2 $3 $4 $5 $6 National debt The National Debt 00 Trillions of dollars

9 5. Which of the following countries has the smallest national debt as a percentage of CDP? a. Italy. b. Canada. c. United Kingdom. d. Japan. e. France. C.

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11 6. Which of the following is false? a. The national debt’s size decreased steadily after World War II until 1980 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. D.

12 7. In 1998, how much of the U.S. national debt was owed to foreigners? a. About 2.5%. b. About 17%. c. About 31%. d. About 59%. B.

13 8. Which of the following owns 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. E. Treasury bills are widely held throughout the public and private sectors both domestically and overseas.

14 9. The portion of the U.S. national debt held by foreigners a. represents a burden because it transfers purchasing power from U.S. taxpayers to other countries. b. is an accounting entry that represents no real burden. c. decreased as a proportion of the total debt during the 1980’s. d. has been constant for many decades. D. Approximately 14 percent of total U.S. debt is external debt.

Which of the following statements about crowding out is true? a. It is caused by a budget surplus. b. It is not caused by a budget deficit. c. It cannot completely offset the multiplier effect of deficit government spending. d. It affects interest rates and, in turn, consumption and investment spending. D. The crowding-out effect is a reduction in private spending caused by federal deficits financed by U.S. Treasury borrowing.

Which of the following statements about crowding out is true? a. It can completely offset the multiplier. b. It is caused by a budget deficit. c. It is not caused by a budget surplus. d. All of the above are true. D. If crowding out occurs, reduced private spending offsets the multiplier effect of increased government spending. The debt is a summation of each years deficits and therefore effects consumption and investments. No crowding out occurs with budget surpluses because the government is not competing with consumers and investors for available funds.

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