Quiz | March 2012

How Well Do You Know the Federal Deficit?

istockphoto

The federal government has $15 trillion (and growing) of debt on the books -- money owed to average investors, retirement funds, the Federal Reserve, foreign governments and others.

This debt is the accumulation of yearly federal budget deficits. It grew at about the same pace as the economy for most of the last sixty years, but then accelerated in 2008, when deficits got much larger. Even with spending cuts and tax increases, debt is expected to keep growing due to the mounting costs of Social Security and Medicare.

See if you can separate the facts from the myths surrounding the federal budget, the annual deficit and the accumulating national debt with our nine-question quiz.

Quiz

How Well Do You Know the Federal Deficit?

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Question 1 of 9

In the time it took you to read this question, about how much was added to the national debt?

A. $10,000
B. $50,000
C. $250,000
D. $1 million

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Quiz

How Well Do You Know the Federal Deficit?

AP Photo

Question 1 of 9

In the time it took you to read this question, about how much was added to the national debt?

You're right! C. $250,000 is correct.

Sorry, wrong! is incorrect.

The right answer is C. $250,000.

The rate of growth varies from day to day, but typically the debt will rise more than $2 million per minute, so if it took you seven seconds to read the question, the debt grew about a quarter million. The rate of growth varies from day to day, but typically the debt will rise more than $2 million per minute, so if it took you seven seconds to read the question, the debt grew about a quarter million. In late 2012, the debt stood at about $16 trillion or about $50,000 per man, woman and child in the U.S.

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 2 of 9

What percentage of the U.S. Treasury Debt does China hold? (Hint: It's not as big as you might think.)

A. 8%
B. 21%
C. 41%
D. 61%

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 2 of 9

What percentage of the U.S. Treasury Debt does China hold? (Hint: It's not as big as you might think.)

You're right! A. 8% is correct.

Sorry, wrong! is incorrect.

The right answer is A. 8%.

While this is a small share of the total debt outstanding, China buys more than half of new debt issued by the United States, so any shift in its buying habits would have an outsized impact, pushing up interest rates which would have to be higher to attract other customers.

Foreigners own about 34% of the debt , which includes Treasury IOUs held by the Social Security Fund. That's up from only 19% ten years ago. China took over the top spot in 2008 from Japan, which now holds about 7% of the total.

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 3 of 9

Which of the following categories ate up the biggest chunk of the $3.8 trillion federal budget in fiscal year 2011? (Hint: It's not defense spending.)

A. Health care
B. Defense
C. Domestic spending (other than health and defense)
D. Interest on the debt

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 3 of 9

Which of the following categories ate up the biggest chunk of the $3.8 trillion federal budget in fiscal year 2011? (Hint: It's not defense spending.)

You're right! A. Health care is correct.

Sorry, wrong! is incorrect.

The right answer is A. Health care.

Health care by far, clocking in at 25%. That includes 15% for Medicare, 8% for Medicaid and 2% to care for veterans. Defense was second at 19%. Other discretionary domestic spending accounted for 18%. Interest on the debt? It's only 6%.

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 4 of 9

Politicians often say they want to force the government to manage their finances just like any American family does. The government pays about 10% of its income (tax revenue) in interest. What is the percentage for the average family?

A. 4%
B. 5%
C. 10%
D. 11%

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 4 of 9

You're right! D. 11% is correct.

Sorry, wrong! is incorrect.

The right answer is D. 11%.

That is down from a high of 13% before the financial crisis, thanks to write-offs, greater savings, and lower interest rates.

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How Well Do You Know the Federal Deficit?

Question 5 of 9

The government ran a surplus during the last four years of the Clinton administration. Prior to that, which president managed to balance the budget?

A. Jimmy Carter
B. Ronald Reagan
C. Lyndon B. Johnson
D. George H. W. Bush

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How Well Do You Know the Federal Deficit?

Question 5 of 9

The government ran a surplus during the last four years of the Clinton administration. Prior to that, which president managed to balance the budget?

You're right! C. Lyndon B. Johnson is correct.

Sorry, wrong! is incorrect.

The right answer is C. Lyndon B. Johnson.

President Johnson submitted a balanced budget his last year in office, and when fiscal year 1969 ended under President Nixon, there was a small surplus. That was followed by almost 20 years of deficits, and then large surpluses throughout Clinton’s second term. While economists and politicians disagree on the causes, contributing factors include the 1993 income tax increase, austerity measures (including budget caps and welfare reform) and the economic boom that led to higher profits and earnings, thereby boosting tax revenue.

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 6 of 9

Instead of resorting to big spending cuts and tax increases, we can grow our way out of deficits and stabilize the debt by boosting the economy.

A. True
B. False

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 6 of 9

Instead of resorting to big spending cuts and tax increases, we can grow our way out of deficits and stabilize the debt by boosting the economy.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Growing the economy will help, but it's not enough. It would take several decades of sustained growth of 6% a year to stabilize the debt at 60% of GDP. Since World War II, the economy has never grown by more than 4.4% over a full decade.

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 7 of 9

In 2008 total U.S. debt was 70% of gross domestic product. What will it be this year?

A. 60%
B. 70%
C. 105%

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Quiz

How Well Do You Know the Federal Deficit?

istockphoto

Question 7 of 9

In 2008 total U.S. debt was 70% of gross domestic product. What will it be this year?

You're right! C. 105% is correct.

Sorry, wrong! is incorrect.

The right answer is C. 105%.

The scariest part is that if Congress fails to approve spending cuts it will be even higher. In future years, even with deep spending cuts, it is unlikely to fall below 100% by 2017.

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Quiz

How Well Do You Know the Federal Deficit?

AP Photo

Question 8 of 9

Ending foreign aid and keeping taxpayer dollars home would save about how much of the federal budget?

A. 1%
B. 2%
C. 5%

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Quiz

How Well Do You Know the Federal Deficit?

AP Photo

Question 8 of 9

Ending foreign aid and keeping taxpayer dollars home would save about how much of the federal budget?

You're right! A. 1% is correct.

Sorry, wrong! is incorrect.

The right answer is A. 1%.

Foreign aid is a political hot button. But less than $35 billion goes to overseas spending programs, including humanitarian assistance in crises, such as the earthquake in Haiti.

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Quiz

How Well Do You Know the Federal Deficit?

Courtesy Ronald Reagan Library

Question 9 of 9

The long-term average level of federal spending is about 20% of GDP and would average 23.5% over the next ten years without any cuts. The average level of spending under President Ronald Reagan was

A. 18.5% of GDP
B. 20% of GDP
C. 22.4% of GDP

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Quiz

How Well Do You Know the Federal Deficit?

Courtesy Ronald Reagan Library

Question 9 of 9

The long-term average level of federal spending is about 20% of GDP and would average 23.5% over the next ten years without any cuts. The average level of spending under President Ronald Reagan was

You're right! C. 22.4% of GDP is correct.

Sorry, wrong! is incorrect.

The right answer is C. 22.4% of GDP.

Government spending has grown rapidly, in part to deal with the short-term costs of the Great Recession, but even without any budget cutting, it won't be much larger, as a share of the economy, than it was when Reagan presided over the greatest expansion of government since World War II. However, unlike the 1980s, when tax revenue averaged more than 18% of GDP, revenue is only 14.8% of GDP, leading to much larger deficits.

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Quiz

How Well Do You Know the Federal Deficit?

Results: 0 out of 9 Right

Quiz | March 2012

How Well Do You Know the Federal Deficit?

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How Well Do You Know the Federal Deficit?

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How Well Do You Know the Federal Deficit?

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How Well Do You Know the Federal Deficit?

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