Question
Chapter 22, Problem 1QAP

a.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

a.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

The difference between the spending of real government and taxes of net transfers is considered primary deficit and not deficit.

b.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

b.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

The difference between the real government spending and taxes is considered as primary deficit.

c.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

c.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

In the past century, United States has seen a lot more fluctuations in the ratio of debt to GDP. In situations like Great Depression and World War, government spending increased a lot but tax was not increased in the same proportion. This caused increase in debt to GDP ratio.

d.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

d.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

Countries should not burden the coming or current generations with war finance. This can cause reduction in capital stock in future. However, this can be reduced by spreading the burden across the generation with tax smoothing and deficit finance. Tax smoothing can help avoid distortions that occur due to increase in black market activities.

e.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

e.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

It is not suggested for government to take immediate action always to remove a cyclically adjusted budget deficit. This can cause structural deficit.

f.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

f.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

In case when Ricardian equivalence holds, in that case a decrease in income tax will neither affect consumption nor saving. This happens as citizens know that the decrease in income tax will be followed with increase in taxes in the coming years.

g.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

g.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

It is not true that ratio of debt to GDP cannot be more than 100%. It has been seen that the GDP is less than the national debt.

h.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

h.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

A haircut reduction in the value of outstanding bonds, can cause increase in government debt.

i.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

i.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

The deficit that is adjusted cyclically cannot be always less than the actual deficit. In situations of expansion, when the economy faces beyond potential output, the deficit that is adjusted cyclically is more than the actual deficit.

j.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

j.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

The inflation adjusted deficit is not always smaller than the actual deficit. In case of deflation, the nominal values are low than the real values. In this situation, the real interest rate is more than the nominal interest rate.

k.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

k.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

Fiscal consolidation is not considered the best policy in situation when the debt to GDP ratio is high. In situation when GDP ratio is high, it can cause recession and can increase the deficit and national debt.

l.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

l.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is uncertain.

Explanation of Solution

The rate of hyperinflation cannot be certain. It cannot be specified that the rate will be greater than 30% per month.

m.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

m.

Expert Solution
Check Mark

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

Hyperinflation can affect the real output. It can distort the price signal and can reduce borrowing and lending. There can be large decline in investment in situation of hyperinflation.

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Chapter 22 Solutions

Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

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