A deficit is defined as:
the excess of total expenditures over total revenues.
Government expenditures are defined as:
government spending on goods and services plus transfer payments.
Transfer payments include:
Social Security, welfare payments, interest on the federal debt
The government debt is defined as:
the sum of all past deficits.
If government spending is $100 billion while government revenue is $120 billion, the government is said to have a:
$20 billion budget surplus
If government spending is $500 billion while government revenue is $475 billion, the government is said to have a:
$25 billion budget deficit.
Suppose the government's initial debt is $70 billion. If for the next three years the government runs deficits of $10, $25, and $40 billion, the government's total debt at the end of the three years will be:
$145 billion.
Suppose the government's initial debt is $150 billion and that during the next two years the government runs deficits of $30 and $10 billion. If during the third year the government has a $15 billion surplus, the government's additional debt at the end of
$25 billion.
If there was a federal budget surplus it would make it possible to:
1. reduce the national debt
2. increase spending on priorities
3. decrease taxes in order to improve the equity and efficiency of the tax
system.
government deficit =
new borrowing from the public + new money created
The government borrows money to cover budget deficits by:
selling bonds.
The government finances budget deficits by:
1. borrowing from the public.
2. creating new money.
Excessive creation of new money to finance a government budget deficit can lead to:
hyperinflation
If the Federal Reserve purchases newly issued government debt:
new money is created.
Which of the following is a burden of the national debt?
Future generations will have to pay higher taxes to finance the national debt.
Which of the following illustrates a burden of the national debt?
A large debt decreases the amount of capital, thereby decreasing future incomes.
Government debt lowers the amount of capital in the economy because the debt:
crowds out" private investment.
Servicing the debt" refers to:
paying interest on the existing debt.
Which of the following is a burden the government places on future generations?
1. higher taxes to service government debt
2. lower levels of capital in the economy
3. the promise of entitlement programs
Social Security and Medicare represent promises made to:
the current generation but paid for by future generations.
Automatic stabilizers are changes in taxes and transfer payments that occur:
automatically as economic activity changes.
Changes in taxes and transfer payments that dampen economic fluctuations are known as:
automatic stabilizers.
During recessions, unemployment __________ while the budget deficit as a percentage of GDP __________
increases; increases
A constitutional balanced budget amendment would:
require that federal expenditures equal revenues (excluding borrowing).
Arguments for the balanced budget amendment include which of the following?
A balanced budget amendment would reduce the taxation burden on future generations.
Which of the following is an argument for the balanced budget amendment?
A balanced budget amendment would increase capital formation.
To reduce inflation usually requires that actual unemployment:
rise above the natural rate of unemployment.