a.
To find:Whether the given statement is true or false or uncertain and the reason for such.
a.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
The difference between the spending of real government and taxes of net transfers is considered primary deficit and not deficit.
b.
To find:Whether the given statement is true or false or uncertain and the reason for such.
b.
Answer to Problem 1QAP
The statement is true.
Explanation of Solution
The difference between the real government spending and taxes is considered as primary deficit.
c.
To find:Whether the given statement is true or false or uncertain and the reason for such.
c.
Answer to Problem 1QAP
The statement is true.
Explanation of Solution
In the past century, United States has seen a lot more fluctuations in the ratio of debt to
d.
To find:Whether the given statement is true or false or uncertain and the reason for such.
d.
Answer to Problem 1QAP
The statement is true.
Explanation of Solution
Countries should not burden the coming or current generations with war finance. This can cause reduction in capital stock in future. However, this can be reduced by spreading the burden across the generation with tax smoothing and deficit finance. Tax smoothing can help avoid distortions that occur due to increase in black market activities.
e.
To find:Whether the given statement is true or false or uncertain and the reason for such.
e.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
It is not suggested for government to take immediate action always to remove a cyclically adjusted budget deficit. This can cause structural deficit.
f.
To find:Whether the given statement is true or false or uncertain and the reason for such.
f.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
In case when Ricardian equivalence holds, in that case a decrease in income tax will neither affect consumption nor saving. This happens as citizens know that the decrease in income tax will be followed with increase in taxes in the coming years.
g.
To find:Whether the given statement is true or false or uncertain and the reason for such.
g.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
It is not true that ratio of debt to GDP cannot be more than 100%. It has been seen that the GDP is less than the national debt.
h.
To find:Whether the given statement is true or false or uncertain and the reason for such.
h.
Answer to Problem 1QAP
The statement is true.
Explanation of Solution
A haircut reduction in the
i.
To find:Whether the given statement is true or false or uncertain and the reason for such.
i.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
The deficit that is adjusted cyclically cannot be always less than the actual deficit. In situations of expansion, when the economy faces beyond potential output, the deficit that is adjusted cyclically is more than the actual deficit.
j.
To find:Whether the given statement is true or false or uncertain and the reason for such.
j.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
The inflation adjusted deficit is not always smaller than the actual deficit. In case of deflation, the nominal values are low than the real values. In this situation, the real interest rate is more than the nominal interest rate.
k.
To find:Whether the given statement is true or false or uncertain and the reason for such.
k.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
Fiscal consolidation is not considered the best policy in situation when the debt to GDP ratio is high. In situation when GDP ratio is high, it can cause recession and can increase the deficit and national debt.
l.
To find:Whether the given statement is true or false or uncertain and the reason for such.
l.
Answer to Problem 1QAP
The statement is uncertain.
Explanation of Solution
The rate of hyperinflation cannot be certain. It cannot be specified that the rate will be greater than 30% per month.
m.
To find:Whether the given statement is true or false or uncertain and the reason for such.
m.
Answer to Problem 1QAP
The statement is false.
Explanation of Solution
Hyperinflation can affect the real output. It can distort the price signal and can reduce borrowing and lending. There can be large decline in investment in situation of hyperinflation.
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Chapter 22 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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