If large budget deficits push government debt as a share of the economy to higher and higher levels, this will eventually lead to
What will be an ideal response?
higher interest rates on the government's bonds because it will be more risky to loan the government funds.
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According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery?
a. Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery. b. Repayment of the debt can always be shifted to the future, making it possible to keep tax rates low and thereby strengthen the recovery. c. Higher interest payments will increase future government spending, and thereby promote a stronger the recovery. d. The increase in government spending will exert a multiplier effect on the economy, leading to a stronger recovery.
Suppose a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers by the federal government. Which of the following correctly describes how this tax will affect the market for electricity served by these power plants?
a. Demand for electricity will increase. b. Demand for electricity will decrease. c. The supply of electricity will decrease. d. The supply of electricity will increase.
Brian is paid monthly and typically takes $500 of his pay in cash to spend throughout the month, and the rest he leaves in an interest-bearing checking account. With the recent inflation, Brian finds it necessary to go to the bank every week, withdrawing $125 each time, so that his money can earn interest for as long as it can before Brian needs to withdraw it. The added hassle of going to the bank more often in response to inflation is called a:
A. tax distortion. B. transactions cost. C. shoe-leather cost. D. menu cost.
A change in consumers' incomes causes a change in:
A. the demand for normal goods but not the demand for inferior goods. B. supply. C. demand. D. the cross-price elasticity of demand.