Federal Budget and Economics Quiz

If the federal government has a budget surplus in a given year, the U.S. debt will:

• decrease.

• remain constant.

• increase only if output is below potential output.

• increase.

For fiscal years 2019, 2020, 2021 and 2024, the federal budget deficit was approximately (in trillions of dollars):

• $0.5, $1.0 $1.5, $0.5

• $1.0, $3.1, $2.8, $4.0

• $1.0, $3.1, $2.8 $1.8

• $0.0, $2.0, $4.0, $1.0

When the U.S. Government runs a deficit, the

• Fed has to buy bonds to finance the deficit.

• The U.S. Treasury has to sell bonds to finance the deficit.

• Federal government tax revenues must be more than Federal government spending.

• Both B and C are correct.

Keynesian Economics

• Suggests that deficit spending during a recession is a good thing.

• Appears to have provided “cover” for politicians to support deficit spending.

• Is likely a reason the U.S. Federal Government has incurred a budget deficit is the great majority of the past 40 years.

• All of the above are correct.

For 2024, when the U.S. economy was at least at potential output, the actual U.S. government budget deficit was ________, the cyclical deficit was__________, and the structural deficit was_________.

• large; zero; equal to the actual.
• zero; large; zero

• large; large; large

• large; equal to the actual; zero

Compared to the period prior to 2008, since 2008 U.S. government budget

• surpluses have been larger.

• deficits have been smaller.

• deficits have been higher, particularly since 2019.

• surpluses have been larger, particularly since 2019.

U.S. government budget deficits:

• Likely decrease investment.

• Require the U.S. Treasury to sell bonds.

• Likely increase interest rates.

• All of the above are correct.

U.S. internal public debt includes Treasury bonds (i.e., government securities) owned by:

• U.S. citizens.

• The Federal Reserve.

• The Social Security Trust Fund.

• All of the above.

U.S. external public debt includes Treasury bonds (i.e., government securities) owned by:

• U.S. citizens.

• Non U.S. citizens and governments (i.e., foreigners).

• The Social Security Trust Fund.

• The Federal Reserve.

When the Federal Reserve buys government securities to finance deficit spending,

• It is effectively creating money to finance spending.

• The money supply falls.

• The potential cost of this policy is inflation.

• Both A and C are correct.