question 14

government spending, then the short-run international effect will initially be a capital and a trade a. inflow; deficit b. inflow, surplus c. outflow; deficit d. outflow; surplus 14. Large persistent government budget deficits may have various effects on the economy. Which of the following would be one of their potential effects? a. encourage excessively expansionary monetary policy. b. increase the risk of government default risk. c. raise the interest rate. d. discourage investment and hence reduce growth e. All of the above. 15. In the years leading up to the global financial crisis (say, around 2005-06), the large U.S. federal government deficits have not led to high long-term interest rates (unlike in the 1980s). Which of the followings may not be a possible explanation? a. global saving glut (in excess of global investment). b. foreign exchange intervention by central banks in East Asia (i.e., purchases of US T- bonds) as part of their efforts to promote the exports via keeping their currencies