a) Using IS/LM diagram explain the likely etfects of a fiscal financed by government borrowing on both the domestic interest rate and the level of economic activity. (draw diagram) (b) Briefly explain what the national debt is and why keeping the national debt down as a percentage of GDP can be a good thing.

a) Using IS/LM diagram explain the likely etfects of a fiscal financed by government borrowing on both the domestic interest rate and the level of economic activity. (draw diagram) (b) Briefly explain what the national debt is and why keeping the national debt down as a percentage of GDP can be a good thing.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question: Solve for the equilibrium level of output in the following two scenarios: there isan income tax t=0.1, The income tax would result in the total amount of tax to be the lump sum tax and the income tax rate on income when t=0.1t=0.1 Y=−5+0.5(Y−250−0.1Y)+200+300+50' =−5+0.5(0.9Y−250)+550 =−5+0.45Y−125+550 =0.45Y−420 0.55Y=420Y=4200.55=763.636≅763.64 Please explain this solution. Where does the 0.45Y come from?
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Year SGovernment (billions) Status of government budget 2018 $200 Surplus 2019 -800 Deficit 2020 -400 Deficit 2021 700 Surplus 2022 0 Balanced Question: Determine the value of the government debt for the period 2018–2022.
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D4) country’s GDP growth rate is 6%, the interest rate on its debt (all local currency) is 8%, and its debt-to-GDP ratio is 95%. What does the country have to do to keep its debt-to-GDP ratio below 100%? Group of answer choices Keep its primary deficit below 8.05% of GDP Run a primary surplus of 8.05% of GDP. Bring its primary deficit down to zero. Raise its GDP growth rate to 8%.
(i) Explain the difference between the headline fiscal deficit and the primary fiscal deficit. Which one will be the biggest figure? Explain your reasoning. Is it possible for a country to have a headline fiscal deficit and a primary fiscal surplus? Explain your reasoning. (ii)
(Fiscal Multipliers) Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
3. The economy of Country Zeta is in long-run equilibrium; however, the government is concerned about the size of the national debt. (a) Identify one specific fiscal policy action the government could take to reduce the national debt. (b) Draw a correctly labeled graph of the loanable funds market, and show the effect of the fiscal policy action identified in part (a) on the real interest rate. (c) Based on the change in the real interest rate identified in part (b), what will happen to each of the following? (i) Aggregate demand in the short run. Explain. (ii) Potential real output. Explain.
5. Explain the difference between an excise, corporate, payroll, & income tax rates. (a) Suppose that Leia lives on Alderaan. On the planet of Alderaan, income is taxed in a progressive manner. Thus, the first $10,000 of income is taxed at a rate of 5%. Any income earned above $10,000 is taxed at a rate of 20%. Suppose that Leia earns $55,000 in 2019. What is Leia's average tax rate? What is Leia's marginal tax rate?
4. Study Questions and Problems #4 Evaluate the following statement. True or False: The most unlikely problem of the national debt is that the government will go bankrupt. True, because the government surplus is always growing. True, because the U.S. Treasury can roll over the debt by issuing new securities. False, because when government securities mature, the U.S. Treasury will default on its obligations. O False, because the government deficit is always growing.