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Chapter 14: Q.18 (page 320)

The long-run effect of higher government budget deficits on the equilibrium annual flow of real GDP is zero. Who, therefore, benefits in the long run from higher government deficits?

Short Answer

Expert verified

The public benefits in the long run from higher government deficits

Step by step solution

01

introduction

A Federal Budget Deficit requires financial arrangement drive to depend on open acquiring to plug the irregularity for the required public spending.

02

explanation

This makes an inflationary tension in the economy with expanded total interest. The acquisition from the private area will in general come down on the loan fees. This can be managed by a remedial/contractionary money related arrangement. This contains the inflationary pattern by controlling the venture spending. Precluding the money related convenience of the deficit, the higher loan fees become basic to make the public authority protections rewarding for the private area.

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Most popular questions from this chapter

Suppose that the share of U.S. GDP going to domestic consumption remains constant. Initially, the federal government was operating with a balanced budget, but this year it has increased its spending well above its collections of taxes and other sources of revenues. To fund its deficit spending, the government has issued bonds. So far, very few foreign residents have shown any interest in purchasing the bonds.

a. What must happen to induce foreign residents to buy the bonds?

b. If foreign residents desire to purchase the bonds, what is the most important source of dollars to buy them?

Evaluate circumstances under which the public debt could be a burden to future generations.

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 ?

Suppose that the economy is experiencing the short-run equilibrium position depicted at point Ain the diagram below. Then the government raises its spending and thereby runs a budget deficit in an effort to boost equilibrium real GDP to its long-run equilibrium level of $18trillion (in base-year dollars). Explain the effects of an increase in the government deficit on equilibrium real GDP and the equilibrium price level. In addition, given that many taxes and government benefits vary with real GDP, discuss what change we might expect to see in the budget deficit as a result of the effects on equilibrium real GDP.

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