Answered: 1.in what way government is able to…

1.in what way government is able to finance its deficit? 2.explain the reason why budget deficit can contribute higher economic growth and also lower economic growth of the country

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 6QR

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1.in what way government is able to finance
its deficit?
2.explain the reason why budget deficit can
contribute higher economic growth and also
lower economic growth of the country

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Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?
Explain how decreased domestic investments that occur due to a budget deficit will affect future economic growth.
What must take place for the government to run deficits without any crowding out?
The table shows the demand for loanable funds schedule and the supply of loanable funds schedule when the govemment budget is balanced. If the government budget deficit is $1.0 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? HEITI If the government budget deficit is $1.0 trillion, the real interest rate is percent a year If the government budget deficit is $1.0 trillion, the quantity of investment is $ trillion, and the quantity trillion. of private saving is $ S Is there any crowding out in this situation? OA. Yes. The deficit increases the real interest rate, which decreases investment. GELOO Real interest rate (percent per year) 4 677997 8 10 4 Loanable funds Loanable funds demanded supplied (trillions of 2012 dollars per year) 8.5 8.0 05 77761 7.5 7.0 6.5 05 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 6770 00
2. Which of the following would not reduce the budget deficit or would notincrease the budget surplus?a. Raising income taxesb. Switching from direct expenditures to tax expendituresc. Selling the Parliamentary buildingsd. Cutting social security payments
1. 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.
4. What is a government budget deficit? How does it affect interest rate, investment, and economic growth 5. Draw a graph when government run a change in the tax that might increase private saving. How would it affect the market for loanable funds?
1. Assume that the loanable funds market in country X is currently in equilibrim represented by thegraph of the loanable funds where interest rate is r1 and Quantity of loanable funds as Q1. Assume that, government of Country X, which had a balanced budged now increased their spendingwhile the taxes are constant.GDP = 1,000 million BDT G = 100 million BDT C = 850 million BDTX = 100 million BDT T = 50 million BDT M = 125 million BDTA) What is the level of investment spending and private savings? B) What are amounts of budget balance (deficit/surplus) and net capital inflow? [Hint: net capitalinflow equals the value of imports (M) minus the value of exports (X)] Assume that the government funds the increase in spending through increased borrowingC) What will be the impact of the policy action on the interest rate and quantity of loanable funds?Draw correctly labeled graph D) Given your answer, how will the private sector be affected? Is there any “crowding out”?Explain. (Take help of…
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5. Public debt is the borrowing taken by when government revenue is less than spending. a. the general public - consumers b. government entities c. Investment banking firms d. the IMF and World Bank
6. If deficit spending "crowds out" some private investment, could fututre generations be worse off? If external financing eliminates crowding out, are future generations thereby protected?
2. Compared to a balanced budget or a budget surplus, what is the effect of a government budget deficit on national saving in the economy? A. National saving is unchanged. OB. National saving decreases. OC. National saving increases. D. National saving could increase or decrease. 3. What is the effect of a budget deficit created by an increase in government