8. Macroeconomic factors thatApart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, internationalfactors, and levels of business activity-influence interest rates.Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false:StatementsTrueFalseThe larger the federal deficit, other things held constant, the higher are interest rates.OWhen the economy is weakening, the Fed is likely to increase short-term interest rates.OOLong-term interest rates are not as sensitive to booms and recessions as are short-term interest rates.OWhen the economy is weakening, the Fed is likely to decrease short-term interest rates.OO

"The larger the federal deficit, other things held constant, the higher are interest rates."True. A…

Answered: 8. Macroeconomic factors that Apart…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
5. Which of the following can be a reason for gov't deficit: Saving is very large O Investment is very small Net export is very large negative All of the above
Suppose the Government of Pakistan is facingBudget Deficitin Fiscal Year 2020-2021.They want to finance the deficit through borrowing from international market.Governmentof Pakistan hasissued and raised $2.5 billion through a multi-tranche transaction of dollar-denominated Eurobonds as it entered the international capital market.Now,graphically show that how theywill affect the demand, supply for fund and level of interest ratein an economy?
What will be the effect of “contractionary fiscal policy of abroad” on net export, saving and interest rate? Show your answer with the help of graph and also properly explain
The enormous budget deficits of 2009 through 2011 meant that the federal government was borrowing upwards of $1.5 trillion per year. If that borrowing had limited the ability of the private sector to get financial capital for its purposes, economists would call this crowding out. There was O significant evidence this was a problem because interest rates were very high. O little evidence this was a problem because interest rates were very low. O significant evidence this was a problem because interest rates were very low. O little evidence this was a problem because interest rates were very high.
1. A college wants to produce an effigy for the student carnival. Preliminary studiesmade it possible to establish that the production of these effigies requires fixed costs of $2,008and variable costs (materials, labor, energy) of $0.90 per effigy. One of therequirements of the college being not to make a deficit, he had a market study carried out.It appears from this study that by selling these effigies for $3.75 we can hope to sell them1,000, whereas by setting the price at $2.50, the potential sales are 3,000.a) Express the demand in terms of the selling price and representgraphically this function.b) Express the cost of production as a function of the selling price.c) Express the income in terms of the selling price and determine the price that thecollege should fix to maximize the income from this sale of effigies.d) Represent the income function and the cost function on the same system of axesand determine the prices corresponding to the break-even thresholds and numbereffigies…
Which one of the Macroeconomic policy relating to government spending and borrowing? а. Fiscal policy O b. Monetary policy. c. Supply side policy. O d. Market policy
100 T. 80 G 60 40 O $ 100 200 300 400 500 600 700 800 900 GDP Refer to the diagram, in which Tis tax revenues and Gis government expenditures Al figures are in billons of doltars if the ful-employment ODP400 billion while the actual GDP is $200 billion: (Show your calcutations) a. What is the actual budget deficit? b. What is the cyclically adjusted budget deficit? c. The value of cyclically adjusted deficit identifies which type of discretionary fiscal policy? 20 G T.G ($)
15. Consider the economy of Farland. C = 200 + 0.75(Y – T) I = 200 – 25r M = Y – 100r M = 1000; P = 2 G = 100; T = 100 d P a. Find equilibrium interest rate and the equilibrium level of income Y b. With the initial values for monetary and fiscal policy, suppose that the price level rises from 2 to 4. What happens? What are the new equilibrium iaterest rate and level of income? c. Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if government increases its purchaşes or National Bank provides more money supply?
9 Suppose the government borrows $7 billion more next year than this year (for example, they move from a balanced budget to a $7 billion deficit or from a $10 billion deficit to a $17 billion deficit). a Use a supply-and-demand diagram to analyse this policy. What happens to the interest rate? b What happens to investment? To private saving? To public saving? To national saving? Compare the size of the equilibrium changes with the $7 billion of extra borrowing. Is it the same, less or more? Carefully explain why and distinguish the various movements in the diagram. C How do the elasticities of supply of and demand for loanable funds (i.e. the slopes of the curves) affect the size of these changes? (Hint: See chapter 2 to review the definition of elasticity.) d Suppose households believe that greater government saving today implies lower future taxes since there will be little government debt. What does this belief do to private saving and the supply of loanable funds today? Does it…
5. Fiscal policy cannot affect investment in the medium run because output always returns to its natural level. " True False TOSHIBA
33. When the government finances its expenditures by borrowing from consumers and business firms, O a Interest rates rise, reducing private investment spending. O b. It creates new money, making the deficit greater than it would otherwise have been. CO C The national debt goes down. O d. it creates a surplus. O e. It is more Inflationary than if it borrows from the central bank Question 34 9 pts 34. A decrease in the money supply O a Shifts the aggregate supply curve to the right. O b. Shifts the aggregate supply curve to the left. O C Affects neither the aggregate demand nor the aggregate supply curve. O d. Shifts the aggregate demand curve to the right." O e Shifts the aggregate demand curve to the left.

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