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 4SCQ
Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a
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Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion. According to the national saving and investment identity, what will be the trade balance? What will be the trade balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?
Assume that GDP is $6,000, personal disposable income is $5,100, and the government budget deficit is $200. Consumption is $3,800, and the trade deficit is $100.
a. How large is saving ( S )?
b. How large is investment ( I )?
c. How large is government spending ( G )?
Given the numbers below, a. show that the country has a twin deficit?b. Find the output Y? c. Find the private saving, public saving, and national saving?d. Find the net exports?Tax: T= 500 dollars.Gov’t spending: G= 700 dollars.Disposable income Yd = 900 dollars.Consumption: C= 400 dollars.Investment: I= 500 dollars
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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- Private domestic saving provides the pool of funds available for Private domestic saving provides the pool of funds available for ... only financing government budget deficits putting under one's mattress Domestic investment and financing government budget deficits Consuming goods and servicesarrow_forwardAn increase in the budget deficit is the result of: A) Expansionary monetary policy; B) Contractionary monetary policy; C) Expansionary fiscal policy; D) Contractionary fiscal policy. Company tax is a: (a) Progressive, direct tax; (b) Progressive, indirect tax; (c) Proportional direct tax; (d) Regressive indirect tax. In the base year, a country produced 50 units of output at a price of R6,00 each for a nominal GDP of R300. This year it produces 60 units of output at a price of R8,00 each. What is the percentage change in real GDP since the base year? (a) 5%; (b) 10%; (c) 20%; (d) 15%.arrow_forwardThe two ways in which deficit spending can impose a burden on future generations are: a)by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. b)by substituting private goods for public goods and thereby benefiting only large businesses. c)by substituting private goods for public goods and thereby shifting resources to foreign residents. d)by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods.arrow_forward
- Consider two large open economies - U.S. and Europe. If expansionary fiscal policy is adopted in Europe, what happens in the U.S? net capital outflow rises, the real interest rate falls and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending rises. net capital outflow falls, the real interest rate rises and investment spending falls. net capital outflow rises, the real interest rate rises and investment spending falls. In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate: rises, while the real exchange rate falls and net exports rise. falls, while the real exchange rate rises and net exports fall. rises, while the real exchange rate rises and net exports fall. falls, while the real exchange rate rises and net exports rise. Political instability in the U.S. Political instability in the U.S.arrow_forwardIf a country is experiencing a budget deficit and the government reduced spending, resulting in a balanced budget. How a country’s shift from budget deficit to balanced budget would affect its investments, economic growth, net capital outflow and currency exchange rate?arrow_forward. Assume that the gross domestic product is $6,000, personal disposal income is $5,100, the government deficit is $200, consumption is $3,800, and the trade deficit is $100. What is the size of: a. Private Saving b. Investment c. Government Spending d. National Savings e. Taxes f. Public savingsarrow_forward
- Please complete all parts of DFS technical question 4, Chapter 2, reproduced here. Assume GDP is $6,000, personal disposable income is $5,100 and the government budget deficit is $200. Consumption is $3,800, and the trade deficit is $100. a)How large is savings? b)How large is investment? c)How large is government spending?arrow_forward1a)If national income Y = 10,400, disposable income is Yd = 8,800 (assuming transfer payments are zero), consumption is C = 7,700, net exports is NX = 220, and the budget deficit is BD = 150, what is the level of private domestic investment, I ? 1,170 9,230 1,750 1,600 730 1b) The government's structural budget deficit is also called the cyclically-adjusted budget deficit general government budget deficit estimated budget deficit actual budget deficit cyclical budget deficitarrow_forwardOther things equal, when the government runs a large budget deficit, it _____ national saving and thereby _____ capital formation and productivity growth. a) increase;increase b)decreases;decreases c)increase;decreases d;decreases;increasesarrow_forward
- Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 40 25 -15 6 35 30 -10 5 30 35 -5 4 25 40 0 3 20 45 5 2 15 50 10 On the following graph, plot the relationship between the real interest rate and net capital outflow by using the green points (triangle symbol) to plot the points from the initial data table. Then use the black point (X symbol) to indicate the level of net capital outflow at the equilibrium real interest rate you derived in the previous graph. Because of the…arrow_forwardEffects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 50 30 -20 6 45 40 -15 5 40 50 -10 4 35 60 -5 3 30 70 0 2 25 80 5 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable…arrow_forwardAssume that the gross domestic product is $6,000, personal disposal income is $5,100, the government deficit is $200, consumption is $3,800, and the trade deficit is $100. What is the size of: (i) Private Saving (ii) Investment (iii) Government Spending (iv) National Savings (v) Taxes (vi) Public savingsarrow_forward
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