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modern principles of economics

Questions and Answers of Modern Principles Of Economics

What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?
What is the standardized employment budget?
What are some practical weaknesses of discretionary fiscal policy?
What are some of the arguments for and against a requirement that the federal government budget be balanced every year?
Why is government spending typically measured as a percentage of GDP rather than in nominal dollars?
Why are expenditures such as crime prevention and education typically done at the state and local level rather than at the federal level?
Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy
Excise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive. Although everyone pays the same rate regardless of income, why might this be so?
What is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level?
In a booming economy, is the federal government more likely to run surpluses or deficits? What are the various factors at play?
Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Explain your answer. Is it possible for a nation to run budget surpluses and still have its debt/GDP ratio
How will cuts in state budget spending affect federal expansionary policy?
Is expansionary fiscal policy more attractive to politicians who believe in larger government or to politicians who believe in smaller government? Explain your answer.
Is Medicaid (federal government aid to lowincome families and individuals) an automatic stabilizer?
What is a potential problem with a temporary tax increase designed to increase aggregate demand if people know that it is temporary?
If the government gives a $300 tax cut to everyone in the country, explain the mechanism by which this will cause interest rates to rise.
Do you agree or disagree with this statement: “It is in the best interest of our economy for Congress and the President to run a balanced budget each year.” Explain your answer.
During the Great Recession of 2008–2009, what actions would have been required of Congress and the President had a balanced budget amendment to the Constitution been ratified? What impact would
A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of $400 million. In year two, the government runs a deficit of $1 billion. In year three, the
If a government runs a budget deficit of $10 billion dollars each year for ten years, then a surplus of $1 billion for five years, and then a balanced budget for another ten years, what is the
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate
In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?
Assume an economy has a budget surplus of 1,000, private savings of 4,000, and investment of 5,000.a. Write out a national saving and investment identity for this economy.b. What will be the balance
In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity,
Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to
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
What are some steps the government can take to encourage research and development?
Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?
How would you expect larger budget deficits to affect private sector investment in physical capital? Why?
Under what conditions will a larger budget deficit cause a trade deficit?
What does the concept of rationality have to do with Ricardian equivalence?
What are some of the ways fiscal policy might encourage economic growth?
What are some fiscal policies for improving a society’s human capital?
What are some fiscal policies for improving the technologies that the economy will have to draw upon in the future?
Explain how cuts in funding for programs such as Head Start might affect the development of human capital in the United States.
Assume there is no discretionary increase in government spending. Explain how an improving economy will affect the budget balance and, in turn, investment and the trade balance.
Explain how decreased domestic investments that occur due to a budget deficit will affect future economic growth.
The U.S. government has shut down a number of times in recent history. Explain how a government shutdown will affect the variables in the national investment and savings identity. Could the shutdown
Explain how a shift from a government budget deficit to a budget surplus might affect the exchange rate.
Describe how a plan for reducing the government deficit might affect a college student, a young professional, and a middle-income family.
Explain whether or not you agree with the premise of the Ricardian equivalence theory that rational people might reason: “Well, a higher budget deficit (surplus) means that I’m just going to owe
Explain why the government might prefer to provide incentives to private firms to do investment or research and development, rather than simply doing the spending itself?
Under what condition would crowding out not inhibit long-run economic growth? Under what condition would crowding out impede long-run economic growth?
What must take place for the government to run deficits without any crowding out?
Sketch a diagram of how a budget deficit causes a trade deficit.
Sketch a diagram of how sustained budget deficits cause low economic growth.
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,
Using the data in Table 32.3, rank the seven regions of the world according to GDP and then according to GDP per capita.Table 32.3 East Asia and Pacific South Asia Sub-Saharan Africa Latin America
Illustrate the concept of Ricardian equivalence using the demand and supply of financial capital graph.
During the most recent recession, some economists argued that the change in the interest rates that comes about due to deficit spending implied in the demand and supply of financial capital graph
What are the drawbacks to analyzing the global economy on a regional basis?
Create a table that identifies the macroeconomic policies for a high-income country, a middle-income country, and a low-income country.
Use the data in the text to contrast the policy prescriptions of the high-income, middle-income, and low-income countries.
What are the different policy tools for dealing with cyclical unemployment?
Explain how the natural rate of unemployment may be higher in low-income countries.
How does indexing wage contracts to inflation help workers?
Use the AD/AS model to show how increases in government spending can lead to more inflation.
Show, using the AD/AS model, how governments can use monetary policy to decrease the price level.
What do international flows of capital have to do with trade imbalances?
In a recession, does the actual budget surplus or deficit fall above or below the standardized employment budget?
What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where
What would happen if expansionary fiscal policy was implemented in a recession but, due to lag, did not actually take effect until after the economy was back to potential GDP?
What would happen if contractionary fiscal policy were implemented during an economic boom but, due to lag, it did not take effect until the economy slipped into recession?
Do you think the typical time lag for fiscal policy is likely to be longer or shorter than the time lag for monetary policy? Explain your answer?
How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
How would a balanced budget amendment change the effect of automatic stabilizer programs?
Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not.
Have the spending and taxes of the U.S. federal government generally had an upward or a downward trend in the last few decades?
What are the main categories of U.S. federal government spending?
What is the difference between a budget deficit, a balanced budget, and a budget surplus?
Have spending and taxes by state and local governments in the United States had a generally upward or downward trend in the last few decades?
What are the main categories of U.S. federal government taxes?
What is the difference between a progressive tax, a proportional tax, and a regressive tax?
What has been the general pattern of U.S. budget deficits in recent decades?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
What is the difference between discretionary fiscal policy and automatic stabilizers?
Why do automatic stabilizers function “automatically?”
Use the demand-and-supply of foreign currency graph to determine what would happen to a small, open economy that experienced capital outflows.
What are some of the other ways of comparing the standard of living in countries around the world?
What is the primary way in which economists measure standards of living?
What are the four other factors that determine the economic standard of living around the world?
What other factors, aside from labor productivity, capital investment, and technology, impact the economic growth of a country? How?
What strategies did the East Asian Tigers employ to stimulate economic growth?
What are the two types of unemployment problems?
In low-income countries, does it make sense to argue that most of the people without long-term jobs are unemployed?
Is inflation likely to be a severe problem for at least some high-income economies in the near future?
What are the major issues with regard to trade imbalances for the U.S. economy?
Is inflation likely to be a problem for at least some low- and middle-income economies in the near future?
What are the major issues with regard to trade imbalances for low-and middle-income countries?
Demography can have important economic effects. The United States has an aging population. Explain one economic benefit and one economic cost of an aging population as well as of a population that is
Explain why is it difficult to set aside funds for investment when you are in poverty.
Is it possible to protect workers from losing their jobs without distorting the labor market?
Why do you think it is difficult for high-income countries to achieve high growth rates?
Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/AS diagram, based on the Keynesian model, for
Explain why converging economies may present a strong argument for limiting flows of capital but not for limiting trade.
Why are inflationary dangers lower in the high-income economies than in low-income and middle-income economies?
Retrieve the following data from The World Bank database (http://databank.worldbank.org/data/home.aspx) for India, Spain, and South Africa for the most recent year available:• GDP in constant
Prepare a chart that compares India, Spain, and South Africa based on the data you find. Describe the key differences between the countries. Rank these as high-, medium-, and low-income countries,

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