Cause of large increase in government debt.
Answer to Problem 1QQ
Option ‘c’ is the correct answer.
Explanation of Solution
Option (c):
The wars and the related expenditure are the most common reasons which increase the government expenditure. The defense expenditure of any government is priority expenditure. During war period and the subsequent years, the rate of output, production, employment, and consumption would be low. This implies that the revenue of the government would be much less than the Government spending. Thus, the government incurs debts to finance the defense on wars throughout the U.S history. Thus, option (c) is correct.
Option (a):
The recessions are periods of economic downturns which would lead to a decline in the revenue from tax. However, they are not the most common cause of government debt.
Thus, option (a) is incorrect.
Option (b):
The supply side policies of a government which promotes growth along with tax cuts will induce more investment, production, and employment in the economy. Though the immediate revenue cannot be obtained, these policies will ultimately move the economy to a period of progress. The debt incurred due to these policy regulations is also less compared to other causes. Thus, option (b) is incorrect.
Option (d):
The entitlement programs which aim at helping the elderly are part of social security measures adopted by the government. Though this spending is unproductive, it is important for the welfare of the society. However, the spending of the government in this sector is less than the expenditure on other areas. Thus, option (d) is incorrect.
Want to see more full solutions like this?
Chapter 17 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
- How fiscal policy works, and its benefits.arrow_forwardDifferentiate between the following terms:a. a budget deficit. b. the government debt. c. a budget surplus d. a balanced budget.arrow_forwardWhich of the following owns the largest proportion of the national debt? a. foreigners b. federal, state, and local governments and the Federal Reserve c. private individuals, banks, and corporations d. foreign governmentsarrow_forward
- A federal budget deficit is financed by: a. Printing money b. Selling Treasury bonds c. Raising taxes d. Cutting spending Eighty percent of the federal budget: a. Is available for discretionary spending b. Is already funded from decisions made in previous years c. Is devoted to military spending d. Is devoted to health care spending An example of an automatic stabilizer is: a. Military spending b. Social security payments c. Unemployment compensation d. A decision to spend more on highway construction The cyclical deficit: a. Increases with economic growth b. Increases during the peak of a business cycle c. Decreases with faster economic growth d. Decreases during the trough of the business cycle President Obama wants the government to spend a considerable amount of funds on education; healthcare and infrastructure. This spending will lead to which type of deficit? a. Cyclical b. Natural c. Full employment d. Structural A federal budget…arrow_forwardDefine the budget deficit.arrow_forwardGiving examples, outline the reasons for using a discretionary fiscal policy.arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage LearningEconomics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co