Making Sense of the National Debt

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How does the U.S. government borrow to finance deficit spending?

• a. It borrows directly from the governments of foreign countries.

• b. It borrows from the central banks of other countries.

• c. It sells U.S. Treasury securities to the public.

• d. It borrows directly from wealthy citizens.

Which country is the top foreign holder of U.S. federal government debt?

• Germany

• United Kingdom

• Japan

• China

What is a major difference between the way households and countries manage debt?

• a. Only households use debt to invest for the future.

• b. Only governments use deficit spending to buy goods and services they can’t afford now.

• c. Only households have a limited lifespan and attempt to pay off their debt at some point.

• d. Only governments refinance debt by borrowing.

In the case of “intergovernmental debt,” how does the government borrow from itself?

• a. It takes loans from the Federal Reserve System (the central bank of the United States).

• b. It uses surpluses from some government programs to buy U.S. Treasury securities.

• c. It buys private banks then borrows from them.

• d. It borrows from the American people.

How is “debt held by the public” different from the total public debt?

• a. Debt held by the public is debt that is held by American citizens.

• b. Debt held by the public is held in the Social Security trust fund on behalf of the American people.

• c. Debt held by the public is debt held external to the government.

• d. Debt held by the public is deposited at Federal Reserve Banks on behalf of the American people.