Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 12, Problem 5CQ
To determine
The effects of enlarged budget deficit during economic recession.
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Will Increase in government spending financed by borrowing help promote a strong recovery from a severe recession? Why or why not?
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How is fiscal and monetary policy used by the Canadian government if the economy seems to be slipping into recession?
Chapter 12 Solutions
Economics: Private and Public Choice
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Similar questions
- If a nation’s central bank, such as the US Federal reserve, believes the economy is headed toward a recession, what actions should it take?arrow_forwardIn the context of economic recession, explain monetary and fiscal measures that should be implemented by the government and discuss the impacts of these measures on businesses.arrow_forwardWhat went wrong with the U.S. economy in 2008?arrow_forward
- Besides the fact that the rich don't need to spend on big-ticket items like higher education, what does Geoghegan speculate is the reason for why the savings rate is so high in Germany?arrow_forwardIf saving dropped sharply in the economy, what would likely happen to investment? Why?arrow_forwardRuritania's economy has been enjoying positive but slowing growth. The Ministry of Economics is considering various policy measures. Place each option in the appropriate column according to whether it will most likely lead Ruritania on a business cycle path towards continued growth or into a recession. Options: Increase government spending. Decrease government spending. Increase taxes. Decrease taxes. Increasing the federal budget deficit. Increasing the federal budget surplus. Already tried the combinations in the attached pictures and got them wrong.arrow_forward
- Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. look at image for graph What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will increase because the cost of borrowing increases. decrease because the cost of borrowing increases. decrease because the cost of borrowing decreases. increase because the cost of borrowing decreases.arrow_forwardPlease answer fastarrow_forwardConsider the economy of Canada. Its households spend 55% of increases in their income and saves 45 %. There are no taxes and no foreign trade. Currently, Canada has a recessionary gap, the governments aim is to get actual output to increase by 220 billion dollars. How much of a tax cut do they need to have to achieve the overall increase in output of 220 billion dollars?arrow_forward
- Is savings harmful or beneficial to the economy? Contrast the two views on this issue.arrow_forwardUsing a correctly labeled loanable funds graph, show the effect of the contractionary fiscal policy decreasing government spending on real interest rates. Given the change in the real interest rate. What is the impact on each of the following? a. investment b. Economic growth rate. Explain. c. The international value of the dollar. Explain. Now assume instead that the government takes no policy action to fix the problem of the economy that is operating above full employment. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain.arrow_forwardCollaboration with Congress during the Clinton Administration allowed for an aggressive deficit-cutting plan to pass. As a result, the government was able to reach a balanced budget at the end of the 90's. Move the supply and/or demand curves to describe the expected effect that this deficit-reduction likely had upon the loanable funds market. As a result, private investment should have a) decreased as the cost of borrowing increased. b) increased as the cost of borrowing increased. c) increased because the cost of borrowing decreased. d) decreased as the cost of borrowing decreased.arrow_forward
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