What does the government have to do when there is a budget deficit?
What will be an ideal response?
The government has to borrow money and/or raise taxes when there is a budget deficit. Assuming that the budget deficit exists because tax revenues fell short of expenditures, borrowing is the only option. This borrowing increases the public debt, and the government must pay interest on this borrowed money. Additionally, borrowing may "crowd out" private businesses from loans that they would use to buy capital, slowing business productivity in the long run.
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The uses-of-saving identity says that an economy's private saving is used for
A) investment, interest expenses, and the government budget deficit. B) investment, the government budget deficit, and the current account. C) investment, interest expenses, the government budget deficit, and the current account. D) investment, interest expenses, the government budget deficit, transfer payments, and the current account.
The basic idea behind the multiplier is that an increase in
a. GDP brings about an additional, larger increase in GDP. b. consumer spending causes a larger increase in investment spending. c. government spending causes a larger increase in tax revenues. d. spending will cause an even larger increase in equilibrium GDP.
When a positive externality is present in a market, the quantity consumed:
A. is the same as the socially optimal quantity. B. is often more than the socially optimal quantity. C. is less than the socially optimal quantity. D. is always more than the socially optimal quantity.
An increase in U.S. taste for European goods will lead to ______ demand for euros and a(n) ______ exchange rate for the euro.
a. increased; lower b. decreased; lower c. increased; higher d. decreased; higher