4. The equation representing debt dynamics for an economy can be written as follows. Gt-Tt Yt b₁ = a + (r-g)bt-1 ; α = Here, bt represents the change in the debt/GDP ratio, r represents the real interest rate, g represents the growth rate, and bt-1 represents the debt ratio of the previous period. The graphs below represent the borrowing interest rates (r) and growth rates (g) of two different countries. Suppose the budget is in balance in both countries (a = 0). Briefly explain in what direction the debt change ratio of countries A and B separately, according to the equation given above and the graphs below.

4. The equation representing debt dynamics for an economy can be written as follows. Gt-Tt Yt b₁ = a + (r-g)bt-1 ; α = Here, bt represents the change in the debt/GDP ratio, r represents the real interest rate, g represents the growth rate, and bt-1 represents the debt ratio of the previous period. The graphs below represent the borrowing interest rates (r) and growth rates (g) of two different countries. Suppose the budget is in balance in both countries (a = 0). Briefly explain in what direction the debt change ratio of countries A and B separately, according to the equation given above and the graphs below.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The structure of an economy is completely described by the following equations: (1) C = 20 + 0.7(Y-T)(2) T = 0.3YC is consumption, Y is GDP (Income) and T is tax revenue. In 2007 government expenditure (G) was 660 € and autonomous investment (I) was 340 €. In 2008 government expenditures are to be cut to 558 €. Calculate equilibrium income (Y0) and the government budget deficit for 2007 and 2008, respectively. Are the government budgets for both years in line with the Maastricht criteria?
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $250 billion per year. Draw a graph to show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interest due to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds.
Use the table to answer the following questions: Public Debt over Time United States France Italy Belgium Australia France Belgium Australia the United States 2001 Debt $3.3 trillion $0.9 trillion $1.5 trillion $0.3 trillion $0.2 trillion According to the table, which country appeared to be in the worst fiscal shape in 2012? Italy GDP $10.2 trillion $1.5 trillion $1.2 trillion $0.3 trillion $0.7 trillion 2011 Debt $12.2 trillion $1.8 trillion $1.7 trillion $0.3 trillion $0.4 trillion GDP $15.0 trillion $2.0 trillion $1.6 trillion $0.4 trillion $1.4 trillion
No. 6 Consider the following equations for this particular economy. C = 100+ 0.75Yd I = 150 G = 250 T = 200 X = 100 Q = 0.25Yd a. What is the equilibrium level of income of this economy? Is the trade balance in deficit or surplus? By how much? b. Suppose there is an increase in government expenditures by 50. What is the effect on the equilibrium level of income? What is the effect on the trade balance? Explain your answers. C. This question is independent of Question (b). Suppose exports increase by 50. Compared to you answer in (a), what is the effect on the equilibrium level of income and on the trade balance? Explain your answers.
Explain what hysteresis is and provide an analysis of What is the effect of an increase in the Treasury bill rate rising from 7% to 8%, and the government bonds rate from 9% to 11% in the below graph when the government expenditure is endogenous. The overall discussion should not be less than three paragraphs. compare this analysis to when the government expenditure is not endogenous as shown in the second graph.
7. Agreement and disagreement among economists Suppose that Paolo, an economist from a research institute in Alberta, and Sharon, an economist from a public television program, are arguing over budget deficits. The following dialogue shows an excerpt from their debate: Sharon: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation. Paolo: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits. Sharon: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively. The disagreement between these economists is most likely due to Despite their differences, with which proposition are two economists chosen at random most likely to agree? O Employers should not be restricted from outsourcing work to foreign nations. O Central banks should focus more on maintaining low…
Transcribed image text: Assume that a government begins to run a large budget deficit. We might expect a simultaneous
On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves. Supply X Demand 2 10 20 30 40 50 QUANTITY OF LOANABLE FUNDS (Billions of dollars) 12 IN TEREST RATE 10 0 0 60 ģ Demand Supply ? Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion. by According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to $ billion. by After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to $ billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. Place the purple line (diamond…
What is the role of the Council Economic Advisers (CEA) as it relates to the effectiveness of the recent U.S. fiscal policy? Find the names and university affiliations of the present members of the CEA. (This may be a helpful website for finding sum of the information relating to the question. https://www.whitehouse.gov/cea/staff)
Can you help me with this question? 3
This 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?
The following describes some key variables regarding public debt in the UK. Debt to output is 95%, the growth rate of output is 1.2%, and the interest rate on debt is 1.5%. a) What is the primary surplus the government has to run as a percentage of output to ensure a stable debt to output ratio if there is no seigniorage from printing money? b) How would your answer change if you know that the increase in real money balances as a percentage of output is 0.8% per year? c) Assuming, again, no seigniorage what is the primary surplus the government needs to run to ensure that the level of government debt is constant? d) Explain briefly what the concept of "cyclically adjusted budget deficit" is and why is it relevant?