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- 2. Which of the following is a fiscal policy that would increase aggregate demand in the short-run? (A) A decrease in personal income taxes (B) A decrease in government spending (C) An increase in corporate income taxes (D) A purchase of government bonds by the Federal ReserveWhat effect would each of the following events likely have on the level of nominalinterest rates?1. Households dramatically increase their savings rate.2. Corporations increase their demand for funds following an increase in investmentopportunities.3. The government runs a larger-than-expected budget deficit.4. There is an increase in expected inflation.Suppose the economy is in a recession and the government is running a budget surplus. This implies the government is running a __________ and decreasing its __________. structural surplus; net debt structural deficit; net debt structural deficit; net asset structural surplus; net asset balanced budget; net asset
- 1. The current market rate of interest is 8 percent. At that rate of interest, businesses borrow $500 billion per year for investment and consumers borrow $100 billion per year to finance purchases. The government is currently borrowing $100 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $200 billion per year.b. Show the impact on the market rate of interest, assuming that taxpayers do not anticipate any future tax increases.c. How would your conclusion differ if taxpayers fully anticipate future tax increases?Briefly explain whether each of the following statements is true or false. 1. An increase in government expenditure financed by borrowing (running a larger budget deficit) necessarily leads GDP to rise by more than the increase in gov- ernment expenditure according to the IS-LM model.Public debt arises as a result of financing successive budget deficits through borrowing. The public debt stock as at March 2020 stood at GHC 236.1 billion according to the Bank of Ghana. There have been arguments for and against borrowing by government and the opposition all these years depending on where they find themselves.As a student of Public Finance, is borrowing good or bad? Justify your position by coming out with all the relevant arguments for and against your decision.
- The current market rate of interest is 8 percent. At that rate of interest, businesses borrow $500 billion per year for investment and consumers borrow $100 billion per year to finance purchases. The government is currently borrowing $100 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $200 billion per year. b. Show the impact on the market rate of interest, assuming that taxpayers do not anticipate any future tax increases. c. How would your conclusion differ if taxpayers fully anticipate future tax increases?The federal budget deficit has been growing over the past several years. What impact will this fiscal change have on the supply of Treasury bonds? A. Bond supply does not change B. Bond supply increases C. Bond supply declinesTRUE/FALSE According the Congressional Budget Office (CBO), the stimulus package worked in terms of creating jobs, lowering unemployment, and raising GDP.
- The total in rate sensitive assets for a financial institution is $120 million and the total in rate sensitive liabilities is $95 million. What is the cumulative pricing gap (CGAP) and what is the interest rate sensitivity gap ratio if total assets equals $195 million? What would the projected change to net income be if interest rates rose by 2% on both assets and liabilities? What would the projected change to net income be if interest rates declined by 2% on both assets and liabilities? What would the projected change to net income be if interest rates rose by 1.8% on assets and 1.5% on liabilities? What would the projected change to net income be if interest rates declined by 1.8% on assets and 1.5% on liabilities?Identify a reason why Social Security as it currently exists is unsustainable in the long run. The overall U.S. population is shrinking because of decreasing life expectancy, so soon there would not be enough taxpayers to fund A. the Social Security program. B. Income tax revenues that form the largest source of funds for Social Security programs are projected to decline in the long run. OC. Individual income that is subject to Social Security taxes is capped at about $117,000. D. Corporate income that is subject to Social Security taxes is capped at $1 million.What effect would each of the following events likely have on the leavel of nominal interest rates? a. Households dramatically increase their savings rate. b. Corporations increase their demand for funds following an increase in investment opportunities. c. The govenment runs a larger-than-expected budget deficit. d. There is an increase in expected inflation.
