Q: Which formula correctly expresses the relationship between net public debt, gross public debt, and government financial assets?

$$\text{Net Public Debt} = \text{Gross Public Debt} - \text{Government Financial Assets}$$

Question 1

Which of the following best defines a government budget deficit?

Accepted Answer

An excess of government spending over government revenues during a given period of time.

Question 2

Suppose the Canadian government spends $$500 billion in a year and collects 450 $$billion in revenues. What is the budget deficit for that year?

Accepted Answer

$50 billion

Question 3

If the government runs a budget deficit for five consecutive years, what happens to the public debt?

Accepted Answer

It accumulates and increases over time.

Question 4

Which formula correctly expresses the relationship between net public debt, gross public debt, and government financial assets?

Accepted Answer

$$	ext{Net Public Debt} = 	ext{Gross Public Debt} - 	ext{Government Financial Assets}$$

Question 5

During the COVID-19 pandemic, the Canadian government’s deficit-to-GDP ratio spiked. What was the primary cause?

Accepted Answer

Government spending on COVID-19 relief programs.

Question 6

If the government’s expenditures are exactly equal to its revenues in a given year, what is this situation called?

Accepted Answer

Balanced budget

Question 7

Which of the following is NOT a way the government could reduce its budget deficit?

Accepted Answer

Increase major transfers to other levels of government

Question 8

If the government issues bonds to finance a deficit, what is the immediate effect on the public debt?

Accepted Answer

The public debt increases by the amount of the deficit.

Question 9

Suppose the net public debt as a percentage of GDP was 30% before a financial crisis and rose to 66.6% after. What does this indicate about the government’s fiscal position?

Accepted Answer

The government’s debt relative to the size of the economy increased significantly.

Question 10

Which of the following statements about interest payments on public debt is correct?

Accepted Answer

Interest payments depend on the market interest rate.

Question 11

If foreign residents hold 30% of Canada’s net public debt, what is a consequence for Canada’s economy?

Accepted Answer

A portion of interest payments is paid to foreign holders, representing an outflow from Canada.

Question 12

Which of the following best describes a government budget surplus?

Accepted Answer

An excess of government revenues over government spending.

Question 13

If the government invests in projects with a rate of return higher than the interest rate paid on bonds, what is the likely effect on future generations?

Accepted Answer

Future generations will be economically better off.

Question 14

Which equation represents the deficit-to-GDP ratio?

Accepted Answer

$$	ext{Deficit-to-GDP Ratio} = \frac{	ext{Budget Deficit}}{	ext{GDP}} 	imes 100\%$$

Question 15

If the economy is below full employment, what is the short-run effect of a government deficit?

Accepted Answer

It can close the recessionary gap.

Question 16

Which of the following is a major component of federal government expenditures that has grown faster than the economy in recent decades?

Accepted Answer

Major transfers to other levels of government.

Question 17

If net debt charges as a percentage of GDP peaked at 6.5% in 1991 and fell below 1% by 2021, what does this suggest about the government’s fiscal management?

Accepted Answer

Interest payments on the debt have become a smaller burden relative to the economy.

Question 18

Which of the following is NOT a guaranteed benefit under a Canadian government program?

Accepted Answer

Military procurement contracts

Question 19

If the government wants to reduce its deficit by $20 billion, which combination of actions would achieve this goal?

Accepted Answer

Decrease expenditures by $$10 billion and increase taxes by 10 $$billion.

Question 20

Which of the following best describes how a government budget deficit is financed?

Accepted Answer

By issuing government securities such as bonds.

Deficit Spending and the Public Debt: Canadian Perspective (Macroeconomics Today, Chapter 13)

Study Guide - Practice Questions

Study Guide - Flashcards