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Which of the following questions are true and which are false based upon the current US monetary system: Money, Taxes, and Government Borrowing and Spending 1. 2. 3. 4. 5. 6. The government needs to balance its checkbook, "just like I do." Taxes fund government spending. If the government doesn't collect enough taxes to fund its purchases from the private sector, it must sell bonds to cover the shortfall. Interest due on government borrowing is funded from tax receipts. The government depends upon the good pleasure of China and other purchasers of US bonds to adequately fund any shortfalls at a reasonable interest rate. When current debts incurred by the government are not paid off during our lifetimes, it is the same as borrowing from our children's futures. (The "intergenerational transfer of wealth/debt".) When taxes and borrowing are insufficient to cover government spending, the government "prints" money, and this causes inflation. (The "quantity theory of money".) The current accumulation of government debt (via our annual deficits) is unsustainable. If tax receipts plus new debt ever falls below interest due on existing debt, the government will be in technical default of its debt obligations. The government is rapidly approaching bankruptcy, at which point the bond market will refuse to purchase addition US debt, which will in turn cause hyperinflation and a collapse in the value of US currency. Budget surpluses can be accumulated to fund future spending in advance. Both Social Security and Medicare need to be fixed, and this will require "tough choices" such as cuts to benefits and delaying eligibility. If we did not have to pay interest on the debt, that money could be spent elsewhere on projects like revitalizing our infrastructure. The government competes with the private sector for loans, "crowding out" private sector borrowing by increasing private sector interest rates. Via the fractional reserve system, US banks create new money, and this money in turn itself creates new money via the money multiplier effect. If US banks fall below the 10% (fractional) reserve level required by law, they must not make new loans until they secure additional deposits from their customers. (Banks are "reserve constrained".) When the government gave the ten top banks $25 billion to add to their reserves, they were wrong and motivated by greed when they did not loan that money out as intended. Tax receipts collected from wealthy and middle class citizens are redistributed to the poor via the welfare system. There is a "natural rate of unemployment", below which additional jobs will cause inflation. If new programs are not paid for by tax increases or cuts to existing programs, inflation will result. True True True True True True False False False False False False by Benedict@Large
8. 9. 10.
True True True
False False False
11. 12. 13. 14. Banking 15. 16.
True True True True
False False False False
Public Policy 18. 19. 20. True True True False False False