MYECONLAB W/EBK +104 STUDENT PACKET>IC<
17th Edition
ISBN: 9781323761465
Author: HUBBARD/KNAPP
Publisher: Pearson Custom Publishing
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Chapter 16, Problem 16.5.8PA
Sub part (a):
To determine
The meaning of policy lever and reason for the investment in the infrastructure being one of the few remaining policy levers to recover the financial crisis of 2007-2009.
Sub part (b):
To determine
The meaning of policy lever and reason for the investment in the infrastructure being one of the few remaining policy levers to recover the financial crisis of 2007-2009.
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Students have asked these similar questions
Is is possible for federal investment to have a negative rate of return?
Yes, if the spending results in a strong crowding-out effect or if state and local governments substitute towards federal investment by reducing stateand local investment. Either would potentially reduce future productivity and output (GDP), resulting in a negative return.
Yes, if the spending results in a weak crowding-out effect or if state and local investments complement the increase in federal investment by. Either would potentially reduce future productivity and output (GDP) and hence result in a negative return.
No. At worst, federal investment can have no future return as the expenditure offered some form of service (ex. jobs training) or useful infrastructure (ex. highways).
No. If in the future there were a negative return, the federal government would increase expenditures again to offset it.
Can government spending that causes crowding out be detrimental to long-run
economic growth? Explain.
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit.c. How would your conclusion differ if taxpayers fully anticipate future tax increases to offset the increase in the budget deficit?d. Do you think the Ricardian Equivalence is realistic?
Chapter 16 Solutions
MYECONLAB W/EBK +104 STUDENT PACKET>IC<
Ch. 16.A - Prob. 1PACh. 16.A - Prob. 2PACh. 16.A - Prob. 3PACh. 16.A - Prob. 4PACh. 16.A - Prob. 5PACh. 16 - Prob. 16.1.1RQCh. 16 - Prob. 16.1.2RQCh. 16 - Prob. 16.1.3RQCh. 16 - Prob. 16.1.4PACh. 16 - Prob. 16.1.5PA
Ch. 16 - Prob. 16.1.6PACh. 16 - Prob. 16.1.7PACh. 16 - Prob. 16.2.1RQCh. 16 - Prob. 16.2.2RQCh. 16 - Prob. 16.2.3PACh. 16 - Prob. 16.2.4PACh. 16 - Prob. 16.2.5PACh. 16 - Prob. 16.2.6PACh. 16 - Prob. 16.2.7PACh. 16 - Prob. 16.2.8PACh. 16 - Prob. 16.3.1RQCh. 16 - Prob. 16.3.2RQCh. 16 - Prob. 16.3.3PACh. 16 - Prob. 16.3.4PACh. 16 - Prob. 16.3.5PACh. 16 - Prob. 16.3.6PACh. 16 - Prob. 16.4.1RQCh. 16 - Prob. 16.4.2RQCh. 16 - Prob. 16.4.3RQCh. 16 - Prob. 16.4.4PACh. 16 - Prob. 16.4.5PACh. 16 - Prob. 16.4.6PACh. 16 - Prob. 16.4.7PACh. 16 - Prob. 16.4.8PACh. 16 - Prob. 16.4.9PACh. 16 - Prob. 16.5.1RQCh. 16 - Prob. 16.5.2RQCh. 16 - Prob. 16.5.3PACh. 16 - Prob. 16.5.4PACh. 16 - Prob. 16.5.5PACh. 16 - Prob. 16.5.6PACh. 16 - Prob. 16.5.7PACh. 16 - Prob. 16.5.8PACh. 16 - Prob. 16.6.1RQCh. 16 - Prob. 16.6.2RQCh. 16 - Prob. 16.6.3RQCh. 16 - Prob. 16.6.4RQCh. 16 - Prob. 16.6.5PACh. 16 - Prob. 16.6.6PACh. 16 - Prob. 16.6.7PACh. 16 - Prob. 16.6.8PACh. 16 - Prob. 16.6.9PACh. 16 - Prob. 16.6.10PACh. 16 - Prob. 16.6.11PACh. 16 - Prob. 16.7.1RQCh. 16 - Prob. 16.7.2RQCh. 16 - Prob. 16.7.3PACh. 16 - Prob. 16.7.4PACh. 16 - Prob. 16.7.5PACh. 16 - Prob. 16.7.6PACh. 16 - Prob. 16.1RDECh. 16 - Prob. 16.2RDECh. 16 - Prob. 16.3RDE
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- Explain how decreased domestic investments that occur due to a budget deficit will affect future economic growth.arrow_forwardBased on the Ricardian Equivalence, explain the impact of the debt-financed tax cut on public saving, private saving, and national saving.arrow_forwardCan government spending that causes crowding out be detrimental to long-run economic growth?arrow_forward
- 13) Which of the following is NOT an implication of Ricardian equivalence?a) Tax cuts have no effect on national saving. b) The present value of future tax increases equal the current tax cut. c) Tax cuts do not make increase the welfare of consumers. d) The amount of private saving does not change.arrow_forwardSketch a diagram of how sustained budget deficits cause low economic growth.arrow_forwardOptimists maintain that China's debt is not a major concern because they can, "simply grow their way out of it." This is not very reassuring because Chinese economic growth rates have been the lowest in a quarter-century. true because Chinese economic growth rates have been even higher than the rate of growth in total debt. irrelevant because the borrowers were in many cases local governments. O possible but only if interest rates rise.arrow_forward
- 11) If the Ricardian equivalence proposition is correct, then A) deficits harm future generations. B) deficits reduce investment spending. C) deficits stimulate the economy in the short run. D) all of the above E) none of the abovearrow_forwardThis 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?arrow_forwardIs a high national debt a problem for future economic growth? What is the ideal debt-to-GDP ratio? Government spending increases national debt and can cause a crowding-out effect. Explain what the crowding-out effect is and why it’s considered a negative effect of increased government spending. How does an open economy versus a closed economy impact government policy decisions? Why is the economic indicator “consumer sentiment” relevant for making successful policy decisions?arrow_forward
- Please list the 4 key supply-side growth factors we discussed and discuss their viability (do-ability) in terms of getting our economy growing again, given that today our economy is not growing. The issue of viability – if the economy is growing slowly or not at all, do we have any chance of achieving success with each of the 4 growth factors? What will likely cause us problems? What approaches could we use to increase our odds of success? You need to think carefully about this one.arrow_forward1. Which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics? - The government of Walla Walla spent $4.3 billion dollars and collected $2.2 billion dollars in tax revenue. - Candex, an eyeglass frame company, decides to cut the price on all of its frames to $10, which successfully drives out all other firms from the market. - The government deficit is at an all-time high in the United States. As such, people begin to save more money in fear that taxes will increase in the future. - Jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called "Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money.arrow_forward5 1 Planner’s Discounting Suppose that the planner discounts the utility of future generations at the common rate σ. How does the level of public debt decided by a government who aims to achieve the planners’ optimal is affected by different values of σ? Show the mathematical condition and provide economic intuition. (Hint: the optimal steady state we saw in class implicitly assumed that the planner was placing the same weight to all generations. You have to relax this assumption.)arrow_forward
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