Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 12, Problem 9CQ
To determine
The effects of budget deficit on capital formation based on Keynesian crowding out and new classical theories.
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a) Why can't the government run a budget deficit in a one-
period macroeconomic model?
b) Why are government transfer payments not included in
(expenditure-based) GDP?
How can the Keynesiam model of deficit budget spending affect the government management?
According to Keynesians, when should the federal government run a budget deficit and when should it run a surplus?
Chapter 12 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- explain the keynesian theory of high public spending to stimulate economic growth?arrow_forwardAccording to Keynesian economics, what impact would a balanced budget amendment to the constitution requiring the federal government to balance its budget annually have on the economy?arrow_forwardAccording to Keynesians, when should the federal government run a deficit and when should it run a surplus?arrow_forward
- Keynesian economics defends budget balance. However, according to economists, budget balance may exacerbate the effects of the business cycle. Isn't it also a Keynesian view to use discretionary policy to smoothen the business cycles? Aren't those two views contradictory?arrow_forwardIn the short-run framework, budget deficits should: Choose correct and explain why never be run since they slow economic growth over the long run. never be run since they crowd out investment in the short run. be run on a temporary basis whenever the economy is below potential output. be run on a permanent basis since they can always be financed by printing money.arrow_forwardWill Increase in government spending financed by borrowing help promote a strong recovery from a severe recession? Why or why not?arrow_forward
- Identify how planned investment will change in each scenario. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment will increase, decrease, or stay the same? A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer. Due to the recession, planned investment will increase, decrease, or stay the same?arrow_forwardSuppose that the federal government ran a sizable budget surplus during the next decade. Compared to balancing the budget, how would this surplus affect interest rates, saving, and investment? Compare and contrast the traditional view and the new classical view.arrow_forwardC1. What is meant by the "time inconsistency" of economic policy? Why might policymakers be tempted to renege on an announcement they made earlier? In this situation, what is the advantage of a policy rule?C2. What are the policy issues connected with economic growth?C3. Briefly describe how Modigliani's life-cycle hypothesis and Milton Friedman's permanent income hypothesis solve the consumption puzzle.C4. Is the government debt really a problem? Describe the traditional view and the Ricardian view. answer all the parts please and correctly.arrow_forward
- Using the concept in Keynesian economics, which one of the following may not be an effective fiscal policy when there is inflation? a) increasing aggregate demand b) increasing corporate taxes. c) increasing personal taxes. d) decreasing government purchases.arrow_forwardExplain the difference between fiscal policy and monetary policy. What are some of the reasons these macroeconomic policies are used?arrow_forwardExplain the difference between fiscal policy and monetary policy. What are some of the reasons these macroeconomic policies are used? Elaborate on reasons these policies are used.arrow_forward
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