1. Suppose the government cuts transfer payments in an economy with an inflationary gap. How would this policy affect bond prices, interest rates, investment, the exchange rate, net exports, real GDP, and the price level? Show your results graphically. 2. Federally funded student aid programs generally reduce benefits by $1 for every $1 that recipients earn. Do such programs represent government purchases or transfer payments? Are they automatic stabilizers? 3. The text notes that changes in oil prices can affect the inflation-unemployment outcome. Explain what effect changes in oil prices may have on these two variables.

1. Suppose the government cuts transfer payments in an economy with an inflationary gap. How would this policy affect bond prices, interest rates, investment, the exchange rate, net exports, real GDP, and the price level? Show your results graphically. 2. Federally funded student aid programs generally reduce benefits by $1 for every $1 that recipients earn. Do such programs represent government purchases or transfer payments? Are they automatic stabilizers? 3. The text notes that changes in oil prices can affect the inflation-unemployment outcome. Explain what effect changes in oil prices may have on these two variables.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter31: The Impacts Of Government Borrowing

Section: Chapter Questions

Problem 29P: During the most recent recession, some economists argued that the change in the interest rates that...

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Oman’s government will finance most of its budget shortfall in 2021 by borrowing to plug a fiscal gap battered by a decline in oil prices and the coronavirus pandemic. The Persian Gulf state is looking into borrowing that will cover 73%, or 1.6 billion rials ($4.2 billion), of the country’s 2.2 billion-rial shortfall, with the remaining 600 million rials to be drawn from its reserves, according to a post on Twitter by the state-run Oman News Agency on Friday. The government based its 2021 budget plan on an oil price of $45 per barrel. Other highlights from Oman’s 2021 budget: Expenditure is set to fall to 10.8 billion rials, a 14% drop from the previous year. 2021 revenue is set to fall to 8.6 billion rials, a 19% decline. Budget deficit at 8% of gross domestic product in 2021, 2.2 billion rials. Oman has taken measures such as reduced spending and plans to impose a 5% value-added tax in 2021. It will implement developmental projects valued at 371 million rials as part of the effort…
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Please Read the Following Paragraph and Answer the Following Questions Oman’s government will finance most of its budget shortfall in 2021 by borrowing to plug a fiscal gap battered by a decline in oil prices and the coronavirus pandemic. The Persian Gulf state is looking into borrowing that will cover 73%, or 1.6 billion rials ($4.2 billion), of the country's 2.2 billion-rial shortfall, with the remaining 600 million rials to be drawn from its reserves, according to a post on Twitter by the state-run Oman News Agency on Friday. The government based its 2021 budget plan on an oil price of $45 per barrel. Other highlights from Oman’s 2021 budget: • Expenditure is set to fall to 10.8 billion rials, a 14% drop from the previous year. • 2021 revenue is set to fall to 8.6 billion rials, a 19% decline. • Budget deficit at 8% of gross domestic product in 2021, 2.2 billion rials. Oman has taken measures such as reduced spending and plans to impose a 5% value-added tax in 2021.…