Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 33, Problem 10DQ
To determine
Public debt.
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Now suppose that the gross national debt initially is equal to $2.5 trillion and the federal government then runs a deficit of $100 billion.
What is the new level of gross national debt?
If 100 percent of this deficit is financed by the sale of securities to the public, what happens to the level of debt held by the public? What happens to the level of gross debt?
3. If GDP increases by 6 percent in the same year as the deficit is run, what happens to the gross debt as a percentage of GDP? What happens to the level of debt held by the public as a percentage of GDP?
Suppose that the investment demand curve in a certain economy is such that investment declines by $110 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the investment demand curve shifts rightward by $170 billion at each real interest rate for every 1 percentage point increase in the expected rate of return from investment. If stimulus spending (an expansionary fiscal policy) by government increases the real interest rate by 2 percentage points, but also raises the expected rate of return on investment by 1 percentage point, how much investment, if any, will be crowded out?
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Answer completely.
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9) Suppose that the government starts with a debt of $10 billion. Then in year 1 there is a deficit of $50 billion, in year 2 there is a deficit of $70 billion, in year 3 there is a surplus of $40 billion, and in year 4 there is a deficit of $20 billion. What is the government debt at the end of year 4?
Chapter 33 Solutions
Economics (Irwin Economics)
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- Q No.3 What we mean by Economic dues in case of Fiscal Policy in Islamic Economy? Discuss the function of Economic dues in the context of Zakah as a non-discretionary fiscal policy tool of Islamic Economy.arrow_forwardThis problem gets at the question of whether a government can run a budget deficit forever. For a government to avoid defaulting on its debt, it has to ensure its Debt/GDP ratio doesn’t get too big. Assume that ratio is not too big in the US right now, even though it’s about 100%.a) US nominal GDP has been rising by about 4% in recent years. Assume that continues. How much can US government debt rise each year in percent and keep the Debt/GDP ratio constant? b) If US government debt equaled $23 trillion at the start of this year, how big of a budget deficit could the US government run in dollars this year and still keep its Debt/GDP ratio constant?arrow_forward25) The graph above shows the market for a one-year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This will result in the private-sector borrowing to be crowded out by X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 26). The graph above shows the market for a one year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This results in the private-sector borrowing to be crowded out. At the end, the private sector will end up borrowing X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 O. 250arrow_forward
- Suppose an economy has a GDP of $40 billion and a national debt of $20 billion, and the average interest rate on this debt is currently 3%. Calculate the annual interest payments on the debt. What percentage of this economy’s GDP is spent on interest payments on its debt? Suppose that next year, one of two events occurs: (1) GDP and interest rates stay the same, but the economy adds $4 billion to its national debt, or (2) GDP and the national debt stay the same, but the average interest rate on the debt increases to 4%. Which of the two events will result in a larger portion of the economy’s GDP going toward interest payments on the national debt?arrow_forwardSuppose the government's present value of current and projected future outlays is 75 percent of GDP and its present value of current and projected future revenues is 50 percent of GDP. What gap does this describe, and what is the size of the gap? This information describes the _______. A. fiscal gap, which is 25 percent of GDP B. generational gap, which is 25 percent of GDP C. fiscal gap, which is 125 percent of GDP D. fiscal gap, which is – 25 percent of GDParrow_forwardSuppose that the existing stock of debt in Outland is $500500 billion, and the government expects to collect $184184 billion as net tax revenues. If the interest rate in this economy is 11 percent and the government wants to decrease its existing stock of debt by $4040 billion this year, then what should the government run this year?arrow_forward
- 3)Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregateexpenditure and aggregate output curves.2)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?1)By using graphs, show and explain the effects of an expansionary fiscal policy on the goods market by taking thelink between two markets into accountarrow_forwardLet’s assume that in 2017, Sweden’s government had no debt and held $120 billion dollars. To stimulate its economy during 2018, the government of Sweden decides to spend $65 billion more than it will receive in tax revenue and in 2019, the government of Sweden’s expenditures will exceed tax revenues by $75 billion. What will the government of Sweden’s total debt equal at the end of 2019? Group of answer choices $20 billion $120 billion $140 billion $260 billionarrow_forwardSuppose a government has no debt and a balanced budget. Suddenly it decides to spend $10 billion while raising only $8 billion worth of taxes.c) At a 10 percent rate of interest, how much interest will the government pay each year?d) If this same budget deficit occurs for a second year, what would the national debt become? And at a 10 percent rate of interest, now how much interest would have to be paid by the government each year?arrow_forward
- 4. Which of the following is a true statement in reference to the national debt? a. It is almost entirely a result of World War II. b. As a percentage of GDP, it has decreased in recent years. c. It is now large enough for one to question the government's solvency. d. It is now growing at about $10 billion per year. e. As a percentage of GDP, it has steadily grown since World War II.arrow_forward13. Suppose that two countries differ on in the size of their MPC, where the MPC is high in country A and low in country B. Draw IS/LM and AD/AS curves for each country. In which country will monetary policy be most effective at changing income? Fiscal policy?arrow_forwardNow suppose that the gross national debt initially is equal to $2.5 trillion and the federal government then runs a deficit of $100 billion. What is the new level of gross national debt? If 100 percent of this deficit is financed by the sale of securities to the public, what happens to the level of debt held by the public? What happens to the level of gross debarrow_forward
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