Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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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
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During the most recent recession,some economists argued that the change in the interest rates that comes about due todeficit 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 ininvestment off sets the deficit demand.
How does the government budget deficit impact interest rates, investment, and economic growth? Explain your answer.
Answer the following questions: As you know, the US government has been running budget deficits for several years now. In your opinion, and based on economic reasoning, what will happen to the US economy if the US Federal Government continues to run annual budget deficits for the next decade. Will the economy survive that? Will the economy grow? Will it grow as fast as it could? Will the deficits cause the economy to grow faster? Will it grow at all? These are some of the questions you might address in your primary post.
Chapter 31 Solutions
Principles of Economics 2e
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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- Describe how a plan for reducing the government deficit might affect a college student, a young professional, and a middle-income family.arrow_forwardWhy did the budget surpluses in 2000 and 2001 give way to a series of budget deficits beginning in 2002? Why did those deficits increase substantially beginning in 2008?arrow_forwardExplain how, for a country with a high debt ratio, if the financial markets fear that the country will default on its debt this fear may be self-fulfillingarrow_forward
- Do treasury securities finance a federal budget deficit? If so would the government purchase treasury securities to finance the budget deficit or would they sell them?arrow_forwardWhat is meant by revenue deficit and what does it indicatearrow_forwardExplain what effect a large federal deficit might have on interest rates?arrow_forward
- 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.arrow_forwardTextbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S. government was running a budget deficit at the time, assume that the new pre-K funding was financed by the government borrowing, which increases the demand for loanable funds without affecting supply. This question considers the likely effect of this government expenditure on the interest rate. a) Draw typical demand (D1) and supply (S1) curves for loanable funds without the cost of the expanded pre-K programs accounted for. Label the vertical axis “Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (e1) and the equilibrium interest rate (r1). b) Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the…arrow_forwardWhy it could be the case that after an initial sharp increase, the budget deficit could drop through time (as it did in the USA after the 2008 financial crisis)?arrow_forward
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