If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800. What is the balance of trade in this economy? When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant: investment will decrease if savings also remains constant .
When a government records a budget surplus the national savings and investment identity is written as?
Question: When a government records a budget surplus, and acts as a saver rather than a borrower, the national savings and investment identity is written as: S = 1 + (G-T) + (X-M) S-(M-X) – (T – G) = 1 S+I+(M – X) = T S+(M-X) + (T – G) = 1 Which of the following is counted as part of the M2 money supply?
What happens when government budget deficit?
In the United States, a budget deficit can cause the Federal Reserve to release more money into the economy, which feeds inflation . 2 Continued budget deficits can lead to inflationary monetary policies, year after year.
When governments are borrowers in financial markets What are the possible sources of funds from a macroeconomic point of view?
When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more ; (2) private firms might borrow less; and (3) the additional funds for government borrowing might come from outside the country, from foreign financial ...
When the interest rate in an economy increases it is likely the result of either what?
When the interest rate in an economy increases, it is likely the result of either: Select one: a. an increase in the government budget surplus or its budget deficit .
Which of the following is a traditional tool used by the Fed during recessions group of answer choices?
The Fed has traditionally used three tools to conduct monetary policy: reserve requirements , the discount rate, and open market operations.
What is the theory that supports Ricardian equivalence?
The Ricardian equivalence proposition (also known as the Ricardo–de Viti–Barro equivalence theorem ) is an economic hypothesis holding that consumers are forward-looking and so internalize the government’s budget constraint when making their consumption decisions.
Why is budget deficit not necessarily a bad thing?
Question: Question 8 1 pts Why is a budget deficit not necessarily a bad thing? Saving money is not something a government should do . Deficits may allow for tax rate stability during recessions. Governments should always spend more than they collect in revenue to encourage economic growth.
Why is budget deficit bad?
To libertarian and free-market economists, budget deficits are liable to cause significant economic problems – crowding out of the private sector, higher interest rates, future tax rises and even potential of inflation. ... The most useful way of measuring the size of the budget deficit is as a % of GDP.
What happens if there is an increase in the budget deficit?
When an increase in government expenditure or a decrease in government revenue increases the budget deficit, the Treasury must issue more bonds . This reduces the price of bonds, raising the interest rate.
How does government budget deficit affect economic growth?
A budget deficit implies a reduction in taxes and an increase in government spending , which results in an increase in the aggregate demand of the country and subsequent economic growth, ceteris paribusCeteris ParibusCeteris Paribus is Latin for “all other things being equal.” It is used in situations to explain a ...
What happens in the capital market when the government budget deficit increases?
Effect of a Government Budget Deficit on Investment and Equilibrium. A budget deficit will typically increase the equilibrium output and prices , but this may be offset by crowding out.
Which of the following best describes what is the difference between a budget deficit and a budget surplus?
A budget surplus is when extra money is left over in a budget after expenses are paid. A budget deficit occurs when the federal government spends more money that it collects in revenue. A budget surplus is more beneficial to a government.
When the interest rate in an economy decreases it is most likely?
14. When the interest rate in an economy decreases, it is most likely as a result of: A. an increase in the government budget surplus or its budget deficit .
What type of government policy can cause crowding out?
Description: Sometimes, government adopts an expansionary fiscal policy stance and increases its spending to boost the economic activity. This leads to an increase in interest rates. Increased interest rates affect private investment decisions.
When inflation begins to climb to unacceptable level in the economy the government should?
Question: Question 7 1 pts When inflation begins to climb to unacceptable levels in the economy, the government should use contractionary fiscal policy to shift aggregate demand to the left .
