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5. Impact of budget deficits C The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the 3043 government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS S 。。。。 Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits place burden on future taxpayers. Budget deficits crowd out private investment. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.

5. Impact of budget deficits C The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the 3043 government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS S 。。。。 Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits place burden on future taxpayers. Budget deficits crowd out private investment. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Savings,investment And The Financial System
Section: Chapter Questions
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5. Impact of budget deficits The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. x D LOANABLE FUNDS INTEREST RATE D S Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits place a burden on future taxpayers. ? An individual's share of the government debt represents only a small portion of his or her lifetime earnings. Budget deficits crowd out private investment. A decrease in spending today, such as funding cuts in education, may hurt future generations more. me. C 4. Th 3043800 Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what is of the debt relative the For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
Transcribed Image Text:5. Impact of budget deficits The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. x D LOANABLE FUNDS INTEREST RATE D S Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits place a burden on future taxpayers. ? An individual's share of the government debt represents only a small portion of his or her lifetime earnings. Budget deficits crowd out private investment. A decrease in spending today, such as funding cuts in education, may hurt future generations more. me. C 4. Th 3043800 Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what is of the debt relative the For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
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