Which of the following reasons explains in part why debt and deficit situation in the United States is dangerous for the economy? O a. A debt-to-GDP ratio above 100% will likely require interest rates to increase, which will further exacerbate the burden of the debt. O b. With about 45% of all spending in the United States tied to government at some level, the sheer number of people dependent on government spending will limit political power and ability to address government over-spending. Oc. Politicians are very bad at intentionally running budget surpluses during good times as Keynes argued was important. Od. The sheer size of the deficit and debt can prevent further government stimuli from being effective as confidence erodes and leakages (e.g., foreign ownership of debt) benefit from some of the stimulus. Oe. All of the above are reasons to be concerned about the size of the debt and deficit in the United States.

Which of the following reasons explains in part why debt and deficit situation in the United States is dangerous for the economy? O a. A debt-to-GDP ratio above 100% will likely require interest rates to increase, which will further exacerbate the burden of the debt. O b. With about 45% of all spending in the United States tied to government at some level, the sheer number of people dependent on government spending will limit political power and ability to address government over-spending. Oc. Politicians are very bad at intentionally running budget surpluses during good times as Keynes argued was important. Od. The sheer size of the deficit and debt can prevent further government stimuli from being effective as confidence erodes and leakages (e.g., foreign ownership of debt) benefit from some of the stimulus. Oe. All of the above are reasons to be concerned about the size of the debt and deficit in the United States.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 6PA

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This problem gets at the question of whether a government can run a budget deficit forever. For a government to avoid defaulting on its debt, it has to ensure its Debt/GDP ratio doesn’t get too big. Assume that ratio is not too big in the US right now, even though it’s about 100%.a) US nominal GDP has been rising by about 4% in recent years. Assume that continues. How much can US government debt rise each year in percent and keep the Debt/GDP ratio constant? b) If US government debt equaled $23 trillion at the start of this year, how big of a budget deficit could the US government run in dollars this year and still keep its Debt/GDP ratio constant?
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