LOANABLE FUNDS Based on this model, the budget deficit leads to in the interest rate and in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. O Budget deficits place a burden on future taxpayers. O An individual's share of the government debt represents only a small portion of his or her lifetime earnings. OA decrease in spending today, such as funding cuts in education, may hurt future generations more. O Budget deficits decrease national saving. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 2%. If the inflation rate is 3% per year, this means that.nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nationis income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can 'rise by % each year without increasing the debt-to-income ratio.
LOANABLE FUNDS Based on this model, the budget deficit leads to in the interest rate and in the level of investment. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. O Budget deficits place a burden on future taxpayers. O An individual's share of the government debt represents only a small portion of his or her lifetime earnings. OA decrease in spending today, such as funding cuts in education, may hurt future generations more. O Budget deficits decrease national saving. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 2%. If the inflation rate is 3% per year, this means that.nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nationis income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can 'rise by % each year without increasing the debt-to-income ratio.
Chapter1: Making Economics Decisions
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Transcribed Image Text:LOANABLE FUNDS
Based on this model, the budget deficit leads to
in the interest rate and
in the level of investment.
Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply.
Budget deficits place a burden on future taxpayers.
An individual's share of the government debt represents only a small portion of his or her lifetime earnings.
A decrease in spending today, such as funding cuts in education, may hurt future generations more.
Budget deficits decrease national saving.
Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the
case. They argue that what matters is the size of the debt relative to the nation's income.
For example, suppose that real output in the United States grows at approximately 2%. If the inflation rate is 3% per year, this means that.nominal
income must be growing at a rate of
% per year. Because nominal income grows over time, the nation's ability to pay back the national debt
also rises. Therefore, as long as the nationts income grows
than the government debt, the level of debt can continue to increase without
harming the economy. In this case, the nominal government debt can 'rise by
% each year without increasing the debt-to-income ratio.
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