deficits and debt

timer Asked: Apr 23rd, 2017

Question description

  1. The only way to reduce the national debt is to


  1. A federal budget deficit increases with:


  1. The effects of a budget deficit can be offset by:


  1. President Obama wants the government to spend a considerable amount of funds on education; healthcare and infrastructure. This spending will lead to which type of deficit?


  1. Crowding out occurs when:


  1. An example of an automatic stabilizer is:


  1. Eighty percent of the federal budget:


  1. The cyclical deficit:


  1. A federal budget deficit is financed by:


The national debt is:

Short answers

1. Explain the difference between our federal government's deficit and debt.

2. What would happen to the budget deficit if the:

a) GDP growth rate jumped from 1 percent to 3 percent?

b) inflation increased by 2 percentage points?

3. Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes.

a) What will be the government's deficit?

b) If the government finances the deficit by issuing bonds, what amount of bonds will it issue?

c) At a 10 percent rate of interest, how much interest will the government pay each year?

d) If this same budget deficit occurs for a second year, what would the national debt become? And at a 10 percent rate of interest, now how much interest would have to be paid by the government each year?

4.If the interest rate on U.S. Treasury Debt is 3 percent, how much do foreigners collect each year from the U.S. Treasury? (Assume total debt of $13 trillion.)

5. Can government spending that causes crowding out be detrimental to long-run economic growth? Explain.

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