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Debt-to-GDP Ratio, Medicare and Social Security, Principles of Macroeconomics Quiz

The key words in this Macroeconomics course include Debt-to-GDP Ratio, Medicare and Social Security, Mandatory Government Outlay, Social Security, Deficits Versus Debt, Transfer Payment


Using the data shown in the table below, the debt-to-GDP ratio for Greece in 2001 was _______ and the debt-to-GDP ratio for Greece in 2011 was _________.

20012011
DebtGDPDebtGDP
$134.6 billion$129.8 billion$493.19 billion$289.6 billion

96.4%; 58.7%

1.037%; 1.703%

170.3%; 103.7%

103.7%; 170.3%

Explanation : To calculate the debt-to-GDP ratio divide the debt held by the country by its GDP, then multiply it by 100. In 2001, Greece had a debt-to-GDP ratio of (134.6 ÷ 129.8) × 100 = 103.7%. In 2011, Greece had a debt-to-GDP ratio of (493.19 ÷ 289.6) × 100 = 170.3%.


Which of the following represents a mandatory government outlay?

the purchase of a new tank to replace a tank destroyed during a war

rental assistance payments made to those who are poor

an interest payment made to holders of government debt

a payment made to a construction worker who was hired to pave a road

Explanation : Mandatory outlays can be either money or goods/services given to an individual who meets certain criteria, including holders of government debt. Mandatory outlays exist when the government programs and the level of spending on the government programs is determined by law.


Which of the following statements about Medicare and Social Security is true?

Medicare and Social Security represent a mandatory outlay.

Spending on Medicare and Social Security has decreased as a percentage of GDP over the last few decades.

Social Security and Medicare are social insurance programs aimed at supporting needy children.

Medicare and Social Security represent about 10% of total government spending.

Explanation : Mandatory spending on Medicare and Social Security has increased as a percentage of GDP over the last few decades. Medicare and Social Security account for over 1/3 of total government spending.  These are largely only available to the elderly.


Which of the following statements are true about deficits versus debt?

The current year deficit can be subtracted from the current year debt to find the previous year’s deficit.

The sum of all debts equal the deficit.

The sum of all deficits equal the debt.

If in year 1 the debt is $1 million and the deficit in year 2 in $200,000, the debt in year 2 is $800,000.

Explanation : A debt is the sum total of accumulated budget deficits.  If in year 3, the debt is $50 million and in year 4 the deficit is $2 million, then adding year 4’s deficit to year 3’s debt will yield a year 4 debt of $52 million.


Which of the following would be considered a transfer payment by the government?

The government directly pays the health care expenses of senior citizens.

The government spends money to replace all computers in government offices.

The government hires a construction crew to rebuild a bridge across a river

The government helps senior citizens cover their monthly expenses with a cash payment.

Explanation : Transfer payments are those cash (money) payments made where there are no goods or services received in return.  Transfer payments are payments made to senior citizens to cover their monthly expenses with a cash payment. Transfer payments do not include the purchase of goods (such as computers and bridges) or services (such as health care).