Chapter 14: Q. 1 (page 319)
In 2019, government spending istrillion, and taxes collected are trillion. What is the federal government deficit in that year?
In 2015, the federal government's budget deficit is .
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Suppose that the share of U.S. GDP going to domestic consumption remains constant. Initially, the federal government was operating with a balanced budget, but this year it has increased its spending well above its collections of taxes and other sources of revenues. To fund its deficit spending, the government has issued bonds. So far, very few foreign residents have shown any interest in purchasing the bonds.
a. What must happen to induce foreign residents to buy the bonds?
b. If foreign residents desire to purchase the bonds, what is the most important source of dollars to buy them?
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit. Why?
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." "The politician makes a simple arithmetic calculation in which he applies a higher tax rate to the total income reported by "the rich" in a previous year. He says that the government could thereby solve the deficit problem by taxing "the rich."What is the major fallacy in such a claim?
Take a look at Figure 14-1. During the brief green-shaded intervals, is the amount of the U.S. net public debt more likely to be increasing or decreasing? Explain your reasoning.
Suppose that the economy is experiencing the short-run equilibrium position depicted at point in the diagram below. Explain the short-run effects of an increase in the government deficit on equilibrium real and the equilibrium price level. What will be the long-run effects?
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