Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
8th Edition
ISBN: 9780134641843
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 26, Problem 7MCQ
To determine
To find:
The option that correctly explains the situation which causes the crowding out.
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Suppose the GDP of a country with a closed economy is $22 trillion, (net) taxes are $4.2 trillion, public saving is $0.8 trillion, and private saving is $1.3 trillion.
What are the values of consumption, investment, national saving, and government spending?
1b Is the government of this country running a budget surplus or a deficit?
Suppose the government borrows $20 billion more next year than this year.
a. Use a supply-and-demand diagram to analyse this policy. Does the interest rate rise or fall?
b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.
c. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects that you discussed in parts (a) and (b)?
Public saving is positive when:
a. there is a government budget deficit
b. after-tax income of households and businesses is greater than consumption expenditures
c.there is a government budget surplus
d. the government's budget is balanced
Chapter 26 Solutions
Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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- Assume and economy is in recession and the government is considering using fiscal stimulus measures to boost spending , production and employment. a)Explain how "crowding out" can harm productivity growth b) explain how the crowding out problem associated with increase government spending can be avoided. identify any additional policy needed.arrow_forwardA. Calculate the levels of consumption and savings that occurs when the economy is in equilibrium. B. Computer the government budget deficit in this economy. C. If government spending in banana land increases by $1000 what is the amount of the increase in equilibrium output? D. If taxes in banana land decrease by $1000 what is the new equilibrium output in this economy? E. To keep the government budget balanced, of both government spending and taxes in banana land increase by $1000 what is the change in equilibrium income level?arrow_forwardSuppose the GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. assuming this economy is closed, calculate consumption, government purchases national saving, and investment. b. imagine that government start with a balanced budget and then, because of an increase in taxes, start running a budget surplus. graphically analyze the effects of the budget surplus on interest rate, saving and investment if loanable funds means the flow of resources available from private savingarrow_forward
- QUESTION 7 07. What factors make an expansionary "stimulus" fiscal policy effective? a) A government budget deficit associated with fiscal stimulus should should borrow money from those who spend less and save more, to those who spend more and save less. b) A permanent decrease in taxes is more effective in stimulating spending than a temporary one c) An increase in government purchases of goods and services should be temporary and should not permanently displace private spending d) The most expansionary way of financing the budget deficit associated with a fiscal stimulus policy is by the central bank expanding the quantity of money in circulation. e) Infrastructure investment belongs with long-term growth policy, but invariably makes a poor element in stimulus policy because such investment normally take a long time to implement. f) All the above.arrow_forwardSuppose, the government of Australia incurs a budget deficit of $50 billion due to increased government spending in 2020 as result of Covid 19. Because of this, the government borrowing in 2021 increases by the same amount. a) Compare the size of equilibrium changes in 1) investment, 2) public saving, 3) private saving and 4) national saving (public saving + private saving) with $50 billion increase in borrowing. Compare the changes (increase/decrease) in these variables indicating same, less or more than the $50 billion. b) Will the equilibrium quantity of national savings change by more or less than the initial change in public saving? Explain your answerarrow_forward• Analyze the effects of a government budget deficit. • Examine how the interest rate is determined in a variety of scenarios. • Synthesize knowledge of saving, investment, and the financial system. Government budget and national saving: 1. Suppose that GDP equals $10 trillion, consumption equals $6.5 trillion, and the government spends $2 trillion and has a budget deficit of $300 billion. Please find public saving, taxes, private saving, national saving, and investment.arrow_forward
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