Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 26, Problem 7MCQ
To determine
To find:
The option that correctly explains the situation which causes the crowding out.
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Students have asked these similar questions
A. Calculate the levels of consumption and savings that occurs when the economy is in equilibrium.
B. Computer the government budget deficit in this economy.
C. If government spending in banana land increases by $1000 what is the amount of the increase in equilibrium output?
D. If taxes in banana land decrease by $1000 what is the new equilibrium output in this economy?
E. To keep the government budget balanced, of both government spending and taxes in banana land increase by $1000 what is the change in equilibrium income level?
1. If NX=0, then savings must be equal to invesment
Select one:
True
False
2. When the government runs a fiscal deficit, it finances it by:
a. issuing stocks
b. decreasing taxes
c. borrowing money from a commercial bank
d. issuing bonds
3. If taxes increase, then:
a. disposable income decreases
b. disposable income increases
c. consumption increases
d. private savings increase
4. Primary fiscal surplus refers to:
a. private savings
b. total savings
c. public savings
d. trade balance
5. Calculate Private Savings using the proper information below:
Private Consumption=€12,000
Public Spending=€5,000
Taxes= €7,000
GDP=€30,000
Investment=€13,000
6. When the interest rate falls:
a. the cost of borrowing money increases
b. investment decreases
c. investment increases
d. savings increase
7. When the government runs a fiscal deficit and as a result private investment falls, this is called:
8. An economy has the following…
Assume and economy is in recession and the government is considering using fiscal stimulus measures to boost spending , production and employment.
a)Explain how "crowding out" can harm productivity growth
b) explain how the crowding out problem associated with increase government spending can be avoided. identify any additional policy needed.
Chapter 26 Solutions
Foundations of Economics (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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Similar questions
- Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?arrow_forward________________________ making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures. a. Budget deficits b. Debt crises c. Loan guarantees d. Unfunded liabilitiesarrow_forward20. If expansionary fiscal policy in the form of an increase in government spending causes offsetting in part the interest rates to rise, we would expect investment to increase in output. This offset is referred to as a. Increase; multiplier b. Decrease; crowding out c. Increase; crowding in d. Decrease; multiplierarrow_forward
- How will a contractionary fiscal policy affect a budget deficit? A.) Debts will decrease B.) No impact C.) Deficit will increase D.) Deficit will decreasearrow_forward10. Describe the characteristics of fiscal policy from 2000 to 2018. a. From 2000 to 2004, fiscal policy was (expansionary, contractionary ). The cyclically adjusted budget was 1.1 percent in 2000 and moved to -3.2 percent in 2004. b. From 2004 to 2007, the fiscal policy turned ( expansionary, contractionary ) as the cyclically adjusted deficit fell from –3.2 percent of GDP to -1.2 percent of GDP. c. During the Great Recession From 2007 to 2009, fiscal policy was (expansionary, contractionary ). The cyclically adjusted budget was -1.2 percent in 2007 and moved to -7.3 percent in 2009. Note: In 2008, the U.S. Congress passed an (_e increase government spending. The $152 billion in spending came in the form of tax breaks for businesses and payments to individuals. This initial stimulus ( did, did not) have much effect because households saved a substantial portion of their government payments. In 2009 a significantly larger spending stimulus measure, called the American Recovery and…arrow_forwardcomponent of the budget. 3ldentify the impact that each of the following changes in fiscal policy would have on the level of economic growth. a) A reduction in the budget deficit from $200 billion last year to $150 billion this year b) An unchanged budget surplus of $12 billion last year and this year c) A shift from a $15 billion deficit last year to a balanced budget this year. PrtScn F8 Home F9 F7 F6 F5 近arrow_forward
- Social Security and Medicare create a fiscal gap because _______. A. the benefits today exceed the tax revenues to support these programs B. outlays on these programs today minus tax revenues contribute to the government budget deficit C. future generations will have to pay for the benefits received by the current generation D. the present value of current and projected future outlays exceeds those of future tax revenuesarrow_forwardAccording to the traditional view on government debt, a tax cut without a cut in government spending:a. stimulates consumer spending and reduces national saving in the short run.b. stimulates consumer spending and reduces private saving in the short run.c. raises consumption in both the short run and the long run.d. has no effect on consumer spending but reduces national saving in the short run.e. has no effect on consumer spending but reduces private saving in the short run.arrow_forwardCapital budgeting refers to the idea that... а. The government directs a fixed percentage of its budget toward investment expenditure that benefits future generations. b. If the debt-to-GDP ratio rises to unacceptable levels, the central bank can monetise portions of the government debt. С. The government would classify all expenditures as either consumption (benefiting current generations) or investment (benefiting future generations). d. Counter-cyclical fiscal policy is included in the government budget. е. Government budgets should be designed to be balanced, while fully recognising that changing economic circumstances may prevent such balance.arrow_forward
- 7. Examine whether the following items are built-in stabilizers or discretionary changes. (a)Unemployment benefits (b)Tax cuts (c)An increase in government spending on road work (d)Progressive tax systemarrow_forwardAn amendment to the Texas Constitution requires a balanced budget. This means that _____. A. any increase in government spending must be offset by a decrease in the total funds allocated to the General Revenue budget B. the legislature cannot approve a budget if it exceeds the projected revenues for the state by more than 30 percent C. the legislature cannot approve a budget if it exceeds the projected revenues for the state by more than 10 percent D. any increase in government spending must be offset by an increase in revenue and/or cuts in spending elsewhere in the budgetarrow_forwardExpansionary fiscal policy refers to the ________ to increase real GDP. A. Federal Reserve's increasing the money supply and decreasing interest rates B. government's increasing spending and lowering taxes C. Federal Reserve's decreasing the money supply and increasing interest rates D. government's decreasing spending and raising taxesarrow_forward
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