Chapter 18: Q.12 (page 451)
What are some of the ways fiscal policy might encourage economic growth?
Short Answer
Taxes are cut and spending is increased, which frequently requires borrowing through the issuance of government debt.
Chapter 18: Q.12 (page 451)
What are some of the ways fiscal policy might encourage economic growth?
Taxes are cut and spending is increased, which frequently requires borrowing through the issuance of government debt.
All the tools & learning materials you need for study success - in one app.
Get started for freeWhat is the theory of Ricardian equivalence?
Assume that the newly independent government of Tanzania employed you in 1964. Now free from British rule, the Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The government will finance the difference by selling 10-year government bonds at 12% interest per year. Parliament must add the interest on outstanding bonds to government expenditure each year. Assume that Parliament places additional taxes to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
Why have many education experts recently placed an emphasis on altering the incentives that U.S. schools face rather than on increasing their budgets? Without endorsing any of these proposals as especially good or bad, list some of the ways in which incentives for schools might be altered.
Sketch a diagram of how sustained budget deficits cause low economic growth.
What do you think about this solution?
We value your feedback to improve our textbook solutions.