Principles Of Economics V8.0
18th Edition
ISBN: 9781453384503
Author: Taylor, John B.; Weerapana, Akila
Publisher: BOSTON ACADEMIC (DBA FLAT WORLD)
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Textbook Question
Chapter 31, Problem 29P
During the most recent recession, some economists argued that the change in the interest rates that comes about due to deficit spending implied in the demand and supply of financial capital graph would not occur. A simple reason was that the government was stepping in to invest when private firms were not. Using a graph, explain how the use by government in investment offsets the deficit demand.
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Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market.
look at image for graph
What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will
increase because the cost of borrowing increases.
decrease because the cost of borrowing increases.
decrease because the cost of borrowing decreases.
increase because the cost of borrowing decreases.
The table sets out the data for an economy when
the government's budget is balanced.
The quantity of loanable funds demanded increases by
$1.5 billion at each real interest rate and the quantity of
loanable funds supplied increases by $0.5 billion at each
interest rate
If, at the same time the government budget becomes a
deficit of $1.0 billion, what are the real interest rate
and investment?
Does any crowding out occur?
>>> Answer to 1 decimal place
The real interest rate is
Investment is $ billion.
There
OA. is,
HI
percent a year
crowding out in this situation because
OB. is no
the deficit increases the real interest rate, which
decreases investment
investment is $7.0 billion
Real
interest rate
(percent
per year)
4
5
6
7
8
9
10
Loanable funds Loanable funds
demanded
supplied
(billions of 2007 dollars)
8.0
7.5
7.0
6.5
6.0
5.5
5.0
5.0
5.5
6.0
6.5
7.0
7.5
8.0
How does the government budget deficit impact interest rates, investment, and economic growth? Explain your answer.
Chapter 31 Solutions
Principles Of Economics V8.0
Ch. 31 - In a country, private savings equals 600, the...Ch. 31 - Assume an economy has a budget surplus of 1,000,...Ch. 31 - In the late 1990s, the U.S. government moved from...Ch. 31 - Imagine an economy in which Ricardian equivalence...Ch. 31 - Why have many education experts recently placed an...Ch. 31 - What are some steps the government can take to...Ch. 31 - Based on the national saving and investment...Ch. 31 - How would you expect larger budget deficits to...Ch. 31 - Under what conditions will a larger budget deficit...Ch. 31 - What is the theory of Ricardian equivalence?
Ch. 31 - What does the concept of rationality have to do...Ch. 31 - What are some of the ways fiscal policy might...Ch. 31 - What are some fiscal policies for improving a...Ch. 31 - What are some fiscal policies for improving the...Ch. 31 - Explain how cuts in funding for programs such as...Ch. 31 - Assume there is no discretionary increase in...Ch. 31 - Explain how decreased domestic investments that...Ch. 31 - The U.S. government has shut down a number of...Ch. 31 - Explain how a shift from a government budget...Ch. 31 - Describe how a plan for reducing the government...Ch. 31 - Explain whether or not you agree with the premise...Ch. 31 - Explain why the government might prefer to provide...Ch. 31 - Under what condition would crowding out not...Ch. 31 - What must take place for the government to run...Ch. 31 - Sketch a diagram of how a budget deficit causes a...Ch. 31 - Sketch a diagram of how sustained budget deficits...Ch. 31 - Assume that the newly independent government of...Ch. 31 - Illustrate the concept of Ricardian equivalence...Ch. 31 - During the most recent recession, some economists...
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