Define the following terms and explain their importance to the study of macroeconomics.
a. Structural budget deficit
b. Monetize the deficit
c. Crowding out
d. Inflation accounting
e. Mix of fiscal and monetary policy
What will be an ideal response?
a. The structural budget deficit is the hypothetical deficit that would occur with current fiscal policies if the economy were operating near full employment. It is a hypothetical number, in that it is based on assumed conditions. In a recession, the actual budget deficit is much larger than the structural budget deficit; at the peak of a business cycle, the actual budget deficit may be below the structural budget deficit.b. The central bank is said to monetize the deficit when it purchases the bonds that the government issues. While this tends to hold down interest rates, it can also lead to rapid inflation if too much money is created too quickly.c. Crowding out occurs when deficit spending by the government forces private investment spending to contract. If crowding out occurs, the expansionary effects of a budget deficit are substantially diminished.d. Inflation accounting means adjusting standard accounting procedures because inflation lowers the purchasing power of money. Inflation distorts the government budget under conventional accounting procedures by exaggerating interest expenses. To correct the deficit for inflation, we must subtract the inflation premium from the interest paid on the national debt, thereby counting only real interest payments.e. The mix of fiscal and monetary policy is the total stimulative or contractionary effect of the two major tools taken together. Fiscal and monetary policy can be used together to expand or contract, or can be in conflict, that is, working in opposite directions.
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Why did the program not receive sufficient funds? Explain your answer.
What is the endowment effect?
A) the tendency of firms to use celebrities endowed with good looks to promote their products B) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. D) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services
In the last two decades of the 20th century, developing countries as a whole have
a. grown more slowly than developed countries b. grown a bit more rapidly than developed countries c. grown much more rapidly than developed countries d. made very little progress e. none of the above
The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to
A) rise in the near-term and fall later on. B) fall sharply in the near-term and rise later on. C) fall moderately in the near-term and rise later on. D) remain unchanged in the near-term and rise later on.