1. Debt needs to be judged relative to assets because
    assets can increase the ability to repay a debt
  2. Which of the following does not hold some of the U.S. gov debt
    domestic banks, chinese gov., and the fed reserve
  3. Retirement of the baby boomers
    threatens the ss system because the number of retirees will be relatively large compared to the number of workers remaining by 2020
  4. Budget deficits
    increase the national debt in terms of dollars and as a percentage of GDP
  5. In the late 1990s actual output grew so fast that by the end of the period it significantly exceeded potential output. Base on this info, the budget moved into
    surplus during this period as the passive deficit moved into surplus
  6. in the long run deficits reduce
  7. Suppose that the economy has a structural deficit of 200 bil and is also running a budget deficit. It follows that
    the passve deficit or surplus cannot be determined without more info
  8. Which of the following most likely decreases the deficit as a percentage of GDP
    a higher GDP growth rate
  9. Which of the following is true regarding the U.S. gov. debt
    some of the U.S. gov debt is owed to foreigners
  10. When the baby boomers begin to retire in very large numbers, if woker productivity does not change, aggregate supply will
    likely fall because the number of reitrees will be greater than the number of new labor force entrants
  11. Because the baby boom generation threatened the solvency of the U.S. ss system in 1983 the gov passed an amendment to the ss act. this act
    raised ss taxes
  12. If an economy operates below potential income, the actual deficit is
    larger that the structural deficit
  13. when the U.S. dect to GDP ratio has fallen, it has generally been because
    income rose
  14. Politicians who support a "lockbox" for SS argue that
    the SS surplus should be used to urchase gov bonds and reduce gov debt
  15. The U.S. gov currently is running
    very large budget deficits
  16. Deficits and debt are often measured relative to GDP because
    the gov's ability to repay the debt depends on GDP
  17. One of the reasons gov. devt is different from individual debt is
    gov never really needs to pay back its debt
  18. What would make the impending SS prob worse
    an increase in the average age at which people die
  19. If the national devt increases in any given year, it follows that the gov
    sold bonds in that year to finance a budget deficit
  20. Which of the followin holds the most U.S. gov debt
    U.S. gov agencies
  21. deficit
    shortfall of revenues under payments
  22. surplus
    an excess of revenues over payments
  23. gov finances deficits
    by selling bonds to private individuals and to the central bank
  24. structural deficit
    part of budget deficit that would exist even if the economy were at its potential levle of income

    actual deficit - passive deficit
  25. passive deficit
    • part of the deficit that exists because the economy is operating below its potential level of output
    • passive deficit = tax rate x (potential output - actual output)
  26. nominal deficit
    the deficit determined by looking at the difference between expenditures and receipts
  27. real deficit
    nominal deficit adjusted for inflation

    real deficit = nominal deficit (inflation x total debt)
  28. debt
    accumulated deficits minus accumulated surpluses

    debt is accumulated deficits minus accumulated surpluses. wereas deficit is a flow concept, debt is a stock concept
  29. reasons gov debt is different from individual debt are
    • gov lives forever
    • gov can print money to pay debt
    • gov owes much of debt to itself
  30. cash flow accounting system
    accounting system entering expenses and revenues only when cash is received or paid out
  31. policies that would help match real production to real expenditures in 2020 are
    • 1. increase taxes on workers to reduce their consumption
    • 2. reduce ss payments to reduce consumption by retirees
    • 3. increase the retirement age to 72 to increase real production
Card Set
Chapter 15