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Chapter 14: Q. 14.3LO (page 303)

Analyze the macroeconomic effects of government budget deficits.

Short Answer

Expert verified
  • Crowding Out Effect.
  • Increased Debt.
  • Higher Interest Rates.
  • Higher Interest Payments.
  • Short-term Economic process.

Step by step solution

01

Budget deficits.

Faster taxation, lower unemployment rates, and increased economic process lessen the necessity for government-funded programmes like unemployment insurance and Advantage, hence budget deficits as a proportion of GDP may decrease in times of economic boom.

02

Effects of budget deficits.

When the deficit grows because of a rise in government spending or a decrease in income, the Treasury must issue more bonds. This lowers the bond price and raises the rate.

  • Increased Debt.
  • Higher Interest Rates.
  • Higher Interest Payments.
  • Crowding Out Effect.
  • Economic Growth within the Short Term.

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Most popular questions from this chapter

Why do you suppose that governments do not rely on asset sales as a major revenue source over many years?

To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." "The politician makes a simple arithmetic calculation in which he applies a higher tax rate to the total income reported by "the rich" in a previous year. He says that the government could thereby solve the deficit problem by taxing "the rich."What is the major fallacy in such a claim?

In 2019, government spending is\(4.3trillion, and taxes collected are\)3.9 trillion. What is the federal government deficit in that year?

Take a look at the most recent years of data on the net public debt displayed in Figure 14-3, and then examine the most recent years of data on federal budget deficits shown in Figure 14-2. Why do you suppose that the net public debt as a percentage of GDP has grown more slowly recently than was the case between 2008 and 2015 ?

In each of the past few years, the federal government has regularly borrowed funds to pay for at least one-third of expenditures that tax revenues were insufficient to cover. More than60percent

of all federal expenditures now go for entitlement spending. What does this fact imply about how the government is paying for most of its discretionary expenditures?
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