Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 31, Problem 21CTQ
Explain whether or not you agree with the premise of the Ricardian equivalence theory that rational people might reason: “‘Well, a higher budget deficit (surplus) means that I’m just going to owe more (less) taxes In the future to pay off all that government borrowing, so I’ll start saving (spending) now.” Why or why not?
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Explain whether or not you agree with the premise of the Ricardian equivalence theory that rational people might reason: “Well, a higher budget deficit (surplus) means that I’m just going to owe more (less) taxes in the future to pay off all that government borrowing, so I’ll start saving (spending) now.” Why or why not?
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?
Which of the following, regarding debt and growth, is false?
a. If there is no (nominal) GDP growth, the debt/GDP ratio can only be reduced
through fiscal surplus.
b. Furman and Summers argue that the debt/GDP ratio is a misleading measure of
a country's debt burden in an era of low interest rates.
c. The burden of a dollar borrowed by the government today decreases over
time—relative to GDP—if the interest rate on government debt is larger than the
nominal economic growth rate.
d. Blanchard and Leigh found that, following the Great Recession, countries that
enacted fiscal austerity had less economic growth than they expected, and vice- versa
Chapter 31 Solutions
Principles of Economics 2e
Ch. 31 - In a country, private savings equals 600, the...Ch. 31 - Assume an economy has a budget surplus of 1,000,...Ch. 31 - In the late 1990s, the U.S. government moved from...Ch. 31 - Imagine an economy in which Ricardian equivalence...Ch. 31 - Why have many education experts recently placed an...Ch. 31 - What are some steps the government can take to...Ch. 31 - Based on the national saving and investment...Ch. 31 - How would you expect larger budget deficits to...Ch. 31 - Under what conditions will a larger budget deficit...Ch. 31 - What is the theory of Ricardian equivalence?
Ch. 31 - What does the concept of rationality have to do...Ch. 31 - What are some of the ways fiscal policy might...Ch. 31 - What are some fiscal policies for improving a...Ch. 31 - What are some fiscal policies for improving the...Ch. 31 - Explain how cuts in funding for programs such as...Ch. 31 - Assume there is no discretionary increase in...Ch. 31 - Explain how decreased domestic investments that...Ch. 31 - The U.S. government has shut down a number of...Ch. 31 - Explain how a shift from a government budget...Ch. 31 - Describe how a plan for reducing the government...Ch. 31 - Explain whether or not you agree with the premise...Ch. 31 - Explain why the government might prefer to provide...Ch. 31 - Under what condition would crowding out not...Ch. 31 - What must take place for the government to run...Ch. 31 - Sketch a diagram of how a budget deficit causes a...Ch. 31 - Sketch a diagram of how sustained budget deficits...Ch. 31 - Assume that the newly independent government of...Ch. 31 - Illustrate the concept of Ricardian equivalence...Ch. 31 - During the most recent recession, some economists...
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