Which of the following is not considered a legitimate concern of a large public debt quizlet?
Which of the following is not considered a legitimate concern of a large public debt? Bankruptcy of the federal government. The U.S. public debt: consists of the historical accumulation of all past federal deficits and surpluses.
Which of the following best describes the built in stabilizers as they function in the United States?
Which of the following best describes the built-in stabilizers as they function in the United States? Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
Which one of the following might offset the crowding-out effect of financing a large public debt?
Which one of the following might offset a crowding-out effect of financing a large public debt? An increase in public investment. It is possible for an increase in government spending to encourage, instead of crowding out, private investment.
What is a legitimate problem with a large public debt?
government borrowing to finance the public debt increases the real interest rate and reduces private investment. The Federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower.
How can built-in stabilizers be advantageous quizlet?
A major advantage of the built-in or automatic stabilizers is that they: simultaneously stabilize the economy and reduce the absolute size of the public debt. automatically produce surpluses during recessions and deficits during inflations. require no legislative action by Congress to be made effective.
Which of the following did not contribute directly to the Great Recession?
The public debt is the amount of money that: the federal government owes to holders of U.S. securities. Which of the following did not contribute directly to the Great Recession? Bursting of the dot.com stock market bubble.
How can crowding out be avoided?
The reverse of crowding out occurs with a contractionary fiscal policy—a cut in government purchases or transfer payments, or an increase in taxes. Such policies reduce the deficit (or increase the surplus) and thus reduce government borrowing, shifting the supply curve for bonds to the left.
What causes crowding-out effect?
The crowding out effect suggests rising public sector spending drives down private sector spending. There are three main reasons for the crowding out effect to take place: economics, social welfare, and infrastructure. Crowding in, on the other hand, suggests government borrowing can actually increase demand.
What causes the crowding-out effect quizlet?
The crowding-out effect is the offset in aggregate demand that results when expansionary fiscal policy, such as an increase in government spending or a decrease in taxes, raises the interest rate and thereby reduces investment spending.
Which of the following is not an important problem associated with the public debt?
Which of the following is not an important problem associated with the public debt? Interest payments on the debt tend to reduce economic incentives to work and invest. Government borrowing to finance the debt may lead to too much private investment.
What are the effects of public debt?
As the aggregate demand is increased with public debt, therefore, it has a healthy effect on the economy. If public loans are raised for fighting a war, it cripples the productive capacity of the nation and becomes a deadweight debt. These, therefore, result in the instability of the economy.
How does the government reduce debt?
Issuing Debt With Bonds Governments often issue bonds to borrow money. This enables them to avoid raising taxes and provides money to pay expenditures, while also stimulating the economy through public spending, theoretically generating additional tax income from prosperous businesses and taxpayers.
What is contractionary fiscal policy?
Contractionary fiscal policy is so named because it: involves a contraction of the nation's money supply. necessarily reduces the size of government.
How to find the federal budget deficit?
The federal budget deficit is found by: subtracting government tax revenues plus government borrowing from government spending in a particular year. subtracting government tax revenues from government spending in a particular year.
What will fiscal policy do to the economy?
Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle. Fiscal policy will result in alternating budget deficits and surpluses. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
What is cyclically adjusted budget?
decreasing taxes by $25 billion. The cyclically adjusted budget refers to: the inflationary impact that the automatic stabilizers have in a full-employment economy. that portion of a full-employment GDP that is not consumed in the year it is produced.
Why are deliberate changes in government spending and taxes necessary?
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
Why do politicians use fiscal policy?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
Will Social Security become insolvent?
budget deficits are expected to give way to surpluses by the year 2017. Social Security will become insolvent by 2017. budget deficits are expected to remain large for the next several years. An economist who favors smaller government would recommend: tax cuts during recession and tax increases during inflation.
