Question 27: Suppose that the primary deficit (G – T) is zero in the economy. Suppose further that the interest rate (r) is positive but it is smaller than the GDP growth rate (n). The government currently has a positive amount of debt (B > 0). Which of the following statements regarding the government debt is (are) correct? I. The amount of debt (B) does not change over time II. The debt-to-GDP ratio (b = B/Y) will converge to zero in the long-run

Question 27: Suppose that the primary deficit (G – T) is zero in the economy. Suppose further that the interest rate (r) is positive but it is smaller than the GDP growth rate (n). The government currently has a positive amount of debt (B > 0). Which of the following statements regarding the government debt is (are) correct? I. The amount of debt (B) does not change over time II. The debt-to-GDP ratio (b = B/Y) will converge to zero in the long-run

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 51P: A government starts off with a total debt of $3.5 billion. In year one, the government runs a...

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A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of 400 million. In year two, the government runs a deficit of 1 billion. In year three, the government runs a surplus of 200 million. What is the total debt of the government at the end of year three?
What would happen if contractionary fiscal policy were implemented during an economic boom but, due to Lag, it did not take effect until the economy slipped into recession?
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?