a)
The effects of a larger budget deficit on the level of
a)
Explanation of Solution
Suppose the government increases its spending and keeps the same tax, then it will lead to a large budget deficit. On the other hand, an increase in public spending without changing the tax rate would increase the level of GDP in the United States.
b)
The effect of a higher government spending that leads to less spending elsewhere.
b)
Explanation of Solution
If government spending is switched from some purchases toward other purchases, then the total government spending will not change. If there is no change in government spending, then the GDP will not be affected.
c)
The effect of a higher government spending that lead
c)
Explanation of Solution
A continuous increase in public spending without increasing taxes would lead to a larger budget deficit. As a result, GDP would increase, and even if taxes are increased that equal the increase in government spending by an amount less than that the increase in taxes and spending, GDP will rise anyway.
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Chapter 27 Solutions
Economics: Principles & Policy
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