Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. Budget deficits decrease national saving. Budget deficits increase national saving. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. Budget deficits decrease national saving. Budget deficits increase national saving. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 3E
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Based on this model, the budget deficit leads to
D
in the level of investment and
in the interest rate.
Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply.
Budget deficits decrease national saving.
Budget deficits increase national saving.
An individual's share of the government debt represents only a small portion of his or her lifetime earnings.
Budget deficits crowd out private investment.
Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true.
They argue that what matters is the size of debt relative to national income.
For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 3% per year, this means that nominal
income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt
also rises. Therefore, as long as the nation's income grows
than the government debt, the level of debt can continue to increase without
harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.
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