Essay 3 .The result of government deficits is that less savings are available to firms for investment. Explain why and what it means for the economy.
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- Explain how a shift from a government budget deficit to a budget surplus might affect the exchange rate.Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected?In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity, what can you say about the direction in which saving on/or investment must have changed in this economy?
- For each of the following, indicate which type of government spending would justify a budget deficit and which would not. Increased federal spending on Medicare Increased spending on education Increased spending on the space program Increased spending on airports and air traffic controlDescribe how a plan for reducing the government deficit might affect a college student, a young professional, and a middle-income family.onsider the following data (in billion $) for a country in a particular year: (assume this country has Zero Transfer Payment Personal consumption expenditure (C) 200 Exports (x) 10 Government Purchases of goods and services (G) 120 Imports (m) 15 Gross Domestic Product (Y) 1800 Taxes 20 d. What is the value of gross investment? e. What is the value of net export? f. Is the country lending to or borrowing from rest of the world? g. Dose the government has deficit, balance or surplus budget? h. What is the amount of investment financed by national saving? i. What is the amount of investment financed by borrowing from rest of the world? J. What is the meaning of transfer payment
- Given the numbers below, a. show that the country has a twin deficit?b. Find the output Y? c. Find the private saving, public saving, and national saving?d. Find the net exports?Tax: T= 500 dollars.Gov’t spending: G= 700 dollars.Disposable income Yd = 900 dollars.Consumption: C= 400 dollars.Investment: I= 500 dollarsOne objection to deficit spending is that it increases the demand for loanable funds thereby putting upward pressure on interest rates that crowds out private investment spending thereby lowering future U.S. growth. (1) What is the general level of interest rates in 2020?Consider the following data (in billion $) for a country in a particular year: (assume this country has Zero Transfer Payment Personal consumption expenditure (C) 200 Exports (x) 10 Government Purchases of goods and services (G) 120 Imports (m) 15 Gross Domestic Product (Y) 1800 Taxes 20 d. What is the value of gross investment? e. What is the value of net export? f. Is the country lending to or borrowing from rest of the world? g. Dose the government has deficit, balance or surplus budget? h. What is the amount of investment financed by national saving? i. What is the amount of investment financed by borrowing from rest of the world? J. What is the meaning of transfer payment
- Suppose that we’re in an open economy with this situation: - C = $85.890 - I = $125.000 - G = $56.700 - X = $65.000 - M = $55.000 - T = $60.000 Calculate GDP, national saving, private saving, and public saving. Does it has budget deficit or budget surplus?In view of the large adverse impact of COVID-19 on the world economy, many governments have implemented expansionary fiscal policy. Together with a decrease in tax revenues, the governments have sufferedlarge deficits. How does a government deficit affect the interest rate, the quantity of loanable funds and economic growth? Explain your answers with a diagramSuppose there is an increase in budget deficit, what happens to intrest rates and national savings ?