5. Impact of budget deficits C The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the 3043 government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS S 。。。。 Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits place burden on future taxpayers. Budget deficits crowd out private investment. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
5. Impact of budget deficits C The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the 3043 government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on education without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS S 。。。。 Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits place burden on future taxpayers. Budget deficits crowd out private investment. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:5. Impact of budget deficits
The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the
government is experiencing a balanced budget. Assume that concerns about public education have led the government to increase spending on
education without increasing taxes, causing a budget deficit.
Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both.
x
D
LOANABLE FUNDS
INTEREST RATE
D
S
Based on this model, the budget deficit leads to an increase in the interest rate and a decrease in the level of investment.
Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply.
Budget deficits place a burden on future taxpayers.
?
An individual's share of the government debt represents only a small portion of his or her lifetime earnings.
Budget deficits crowd out private investment.
A decrease in spending today, such as funding cuts in education, may hurt future generations more.
me.
C 4. Th
3043800
Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case.
They argue that what
is
of the debt relative the
For example, suppose that real output in the United States grows at approximately 5%. If the inflation rate is 2% per year, this means that nominal
income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt
also rises. Therefore, as long as the nation's income grows
than the government debt, the level of debt can continue to increase without
harming the economy. In this case, the nominal government debt can rise by
% each year without increasing the debt-to-income ratio.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education