A default in the past makes it much more likely that a government will default again, even if the current government is a new regime with every intention of honoring its debts. Why might that be?
What will be an ideal response?
Given the history of default, the government will be able to borrow at all only by paying a relatively high interest rate. Willingness to bear a high cost of borrowing implies that the government feels compelled to spend more than the revenues it can raise. The willingness of creditors to buy the debt implies optimism about future growth and ability to avoid default. A negative macroeconomic shock will both reduce revenue and necessitate increased spending to counteract the economic decline. Tax rates cannot be increased without causing distortions that weaken the economy even further. If creditors are willing to finance more debt, the budget becomes more fragile. If (when) new credit is not available, the government has neither means nor incentive to honor the existing debts.
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If you were president of the United States, what would you do to reduce the natural rate of unemployment? Propose at least three different methods
What will be an ideal response?
While rent subsidies have some disadvantages, one advantage of rent subsidies is _____
a. administrative costs are low b. there is little chance of fraud c. the renter can chose from among different housing qualities d. renters have a strong incentive to shop carefully
National income is calculated by subtracting ____ from GDP
a. depreciation. b. investment and net exports. c. Social Security insurance contributions and transfer payments. d. corporate and personal income taxes.
Assume the marginal propensity to save is 0.10. Firms become optimistic and increase investment spending by $10 billion. Other things being equal, real GDP will:
A. increase by $1 billion. B. not change. C. increase by $10 billion. D. increase by $100 billion.