(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?
(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.7P
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(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2.
a) What is the net impact on
b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector?
c)What are the desirable qualities of an efficient commodity money?
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