Answered: . The public choice perspective on…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. The public choice perspective on deficit spending suggests that deficit spending

- is the result of politicians' concern for the economy's long‑term sucess.

- shifts the costs of programs primarily onto present‑day taxpayers.

- shifts the costs of programs away from current taxpayers and onto future generations.

- is primarily funded by printing money to induce inflation.

2. If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response?

- invest in infrastructure

- cut spending equal to the reduction in tax revenue

- cut taxes to encourage consumer spending

- increase government spending to stimulate the economy

3. What is a likely consequence of this policy?

- The negative consequences of the recession are magnified.

- Consumer spending increases due to their ability to keep more of their after-tax income.

- Unemployment falls due to the economic stimulus.

- There is hyperinflation due to an increase in aggregate demand.

4. Which statement best describes some of the components of externally held debt?

- Public debt held by U.S. banks, firms, and individuals.

- Mutual funds held by individuals, both foreign and domestic.

- Public debt held by foreign individuals and entities.

- Debt held by foreign and U.S. banks and firms, but not foreign or domestic individuals.

5. Why are persistent budget deficits worrisome?

- Deficits can lead to private investment spending being crowded out.

- Debt places an increased burden on the economy in the future.

- The likelihood of default increases.

- All of the above.

6. The process of determining a host of the FIFA World Cup is highly competitive, with many countries vying for this prestigious honor. One consideration for picking a host is the national debt of potential host countries. Consider why a nation's debt level might be a factor in determining which country will host the FIFA World Cup.

Countries with high levels of debt

- often have high crime rates, which may discourage fans from attending the World Cup.

- often follow a functional finance approach, which discourages all types of government spending.

- may be unable to make the significant investment in infrastructure required to host a World Cup.

- are generally experiencing economic recessions, making them an undesirable place to visit for foreign tourists.

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