LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits decrease national saving. Budget deficits place a burden on future taxpayers. Budget deficits crowd out private investment. Budget deficits increase 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 3%. If the inflation rate is 2% 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 nation's 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 level of investment and in the interest rate. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits decrease national saving. Budget deficits place a burden on future taxpayers. Budget deficits crowd out private investment. Budget deficits increase 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 3%. If the inflation rate is 2% 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 nation's 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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