The Public Debt 

1. If government debt grows to finance new military spending, this may impose a burden on future generations only to the extent that:

A. war is bad.

B. government spending crowds out investment spending.

C. government spending on the military is investment expenditure.

D. the government debt needed to finance the military expenditures is held internally.

2. Crowding out is most severe when the:

A. budget deficit is large because of a recession.

B. economy is close to full employment.

C. economy is experiencing stagflation.

D. the Aggregate Supply Curve is relatively flat.

E. the Aggregate Demand Curve is relatively flat.

3. NOT among legitimate concerns about the burden of the growing public debt would be that:

A. investment is reduced.

B. interest rates are excessively high.

C. the government will go bankrupt.

D. government spending grows at excessive rates.

4. The least expansionary method of financing new government spending is to:

A. borrow money within the country.

B. borrow money abroad.

C. increase taxes.

D. increase the money supply.

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