ssume that the government is implementing an expansionary fiscal policy and as a result has increased borrowing. At the same time, the central bank is carrying out a contractionary monetary policy. As a result, we can expect: Interest rates would rise substantially and private investments would be significantly reduced. Interest rates would not change substantially as the 2 policies counterbalance each other, and private investments would not be significantly reduced. Interest rates and private investments would rise. Interest rates and private investments would fall.

ssume that the government is implementing an expansionary fiscal policy and as a result has increased borrowing. At the same time, the central bank is carrying out a contractionary monetary policy. As a result, we can expect: Interest rates would rise substantially and private investments would be significantly reduced. Interest rates would not change substantially as the 2 policies counterbalance each other, and private investments would not be significantly reduced. Interest rates and private investments would rise. Interest rates and private investments would fall.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter13: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 13SQ

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The two ways in which deficit spending can impose a burden on future generations are: a)by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. b)by substituting private goods for public goods and thereby benefiting only large businesses. c)by substituting private goods for public goods and thereby shifting resources to foreign residents. d)by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods.
In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If a fiscal stimulus package is implemented quickly, raising output to $12 trillion, while inflation remains constant at one percent, then the figure implies that the real interest rate will be ________ percent. A) 1.5 B) zero C) one D) 0.5 E) 2.5
An increase in the budget deficit is the result of: A) Expansionary monetary policy; B) Contractionary monetary policy; C) Expansionary fiscal policy; D) Contractionary fiscal policy. Company tax is a: (a) Progressive, direct tax; (b) Progressive, indirect tax; (c) Proportional direct tax; (d) Regressive indirect tax. In the base year, a country produced 50 units of output at a price of R6,00 each for a nominal GDP of R300. This year it produces 60 units of output at a price of R8,00 each. What is the percentage change in real GDP since the base year? (a) 5%; (b) 10%; (c) 20%; (d) 15%.
Which of the following sequence of events occurs in response to an expansionary fiscalpolicy?a) Aggregate output decreases, causing money demand to decrease, causing the interestrate to decrease and planned investment to increase.b) Aggregate output decreases, causing money demand to increase, causing interest ratesto increase and planned investment to decrease.c) Aggregate output increases, causing money demand to increase, causing interest ratesto increase and planned investment to decrease.d) Aggregate output decreases, causing the demand for money to increase, causinginterest rates to increase and planned investment to increase.
Which statement best explains why budget deficits may bring on a recession? a) Large deficits increase interest rates, attracting foreign investors. b) Persistent deficits lead to economic problems that scare away foreign investors. c) Spiraling national debt depresses private saving, reducing the amount of capital that can be invested. d) Deficit spending leads to a reduction in aggregate demand and a decrease in output.
Consider the equilibrium in the market for government bonds and provide clear graphs illustrating the following situations: The domestic economy is undergoing a recession and inflation is raising; The domestic government is facing an unexpected deficit.
Suppose the US Federal Government decides to engage in deficit spending whereby it increases its expenditure through debt financing. Which of the following statements describes deficit spending's short-run and long run affects on real GDP? A) Real GDP rises above the natural level in the short run, but it returns to the natural level in the long run.B) Real GDP remains at the natural level in both the short run and the long run.C) Real GDP falls below the natural level in the short run, but it returns to the natural level in the long run.D) Real GDP rises above the natural level in both the short run and the long run.
At the monetary policy meeting in February 2021, the central bank of Mexico cut its policy the rate for the first time since September in an effort to stimulate the economy. However, after the United States government announced in March 2021 the introduction of a new financial stimulus package to boost the US economy, the Governor of the Mexican central bank announced that the board would consider the impact of the US fiscal stimulus in the Mexican economy, and whether it is necessary to change their monetary response. Explain how a US fiscal stimulus may affect the Mexican economy and why the central bank may respond to it. (100 words max)
Public deficits arise whenever government expenditure exceeds government receipts. This phenomenon may result from various factors, such as an increase in government expenditure, a decrease in taxation, or a decline in receipts due to an economic slowdown. The accumulation of deficit leads to a rise in public debt. This is precisely what happened in many countries in the wake of 2007-2008 financial crises, when a combination of expensive bank bailouts, a decline in tax receipts due to recession, and an increase in government expenditure to fend off recession led to a record high deficit of 7.5 percent of GDP for the entire OECD area in 2010 and a record high public debt-to-GDP ratio of 94 percent in 2014. However, government budget deficits might be quite unsavory to the electorate. Thus, elected governments are sometimes tempted to “cook the books” and use “creative accounting” to present official deficit figures that seriously underestimate the real balance of government budgets.…
Which of the following about government deficits is true? it is a flow variable it is controlled by the Comptroller of Currency it is a stock variable it is controlled by the Federal Reserve
. In the long-run framework, budget surpluses: Select correct and explain why its correct should be run whenever output dips below potential output. should never be run since they crowd out investment in the short run. are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. should be run on a permanent basis since they boost saving and investment and stimulate economic growth.
Consider two large open economies - U.S. and Europe. If expansionary fiscal policy is adopted in Europe, what happens in the U.S? net capital outflow rises, the real interest rate falls and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending falls. net capital outflow rises, the real interest rate rises and investment spending falls. In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate: rises, while the real exchange rate falls and net exports rise. falls, while the real exchange rate rises and net exports fall. rises, while the real exchange rate rises and net exports fall. falls, while the real exchange rate rises and net exports rise. Political instability in the U.S. Political instability in the U.S.