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3. Effects of a government budget deficit
Real Interest Rate
|
National Saving
|
Domestic Investment
|
Net Capital Outflow
|
---|---|---|---|
(Percent)
|
(Billions of dollars)
|
(Billions of dollars)
|
(Billions of dollars)
|
7 | 60 | 30 | -10 |
6 | 55 | 40 | -5 |
5 | 50 | 50 | 0 |
4 | 45 | 60 | 5 |
3 | 40 | 70 | 10 |
2 | 35 | 80 | 15 |
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- Explain how a shift from a government budget deficit to a budget surplus might affect the exchange rate.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 affect the government budget deficit?Summarize the effects of a budget deficit by filling in the following table.Real Interest RateReal Exchange RateTrade BalanceEffects of a Budget Deficit
- 1. How could a greater fiscal deficit create a greater trade deficit? 2. What would you do to reduce the deficit? 3. What is the opportunity cost of government spending on servicing the interest on the debt. 4. If the federal government wished to reduce the deficit to any significant degree without raising taxes, where would the reduced spending likely to have to come from? 5. Assume the federal government replaces the federal income tax with a sales tax placed on consumption expenditures. Analyze the impact of this tax change on taxation efficiency and equity.10 eBook The diagram shows government expenditures and tax revenues for the fictional country of Mountainia. Currently, there is a recession in Mountainia. The country's leaders want to use tax-rate changes to create a cyclically adjusted budget deficit of $3 billion. a. Illustrate how the country's tax revenues will change after the government adjusts tax rates to create this cyclically adjusted budget deficit. Instructions: Use the tool provided 'T2' to illustrate the country's tax revenues after the tax changes are enacted. Government expenditures, G, and tax revenues, T (billions) $25 $20 $15 $10 $5 0 G $40 $80 $120 $160 $200 Real domestic output, GDP (billions) Tools T₂4. Analyzing the effects of a trade deficit Suppose the U.S. government has just hired you to analyze the following scenario. Assume the U.S. automobile industry grows concerned about foreign manufacturers exporting fuel-efficient vehicles to the United States, a practice that harms domestic producers. Industry experts claim that implementing a quota on imports would reduce the size of the trade deficit. Complete the following exercise in order to help you analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the quota. REAL EXCHANGE RATE (Units of foreign currency per dollar) Supply QUANTITY OF DOLLARS Given this change, the dollar appreciates Change due to a quota D2 D1 Demand Supply Fill in the following table with the effect of a quota on the following items: Supply of Loanable Funds Real…
- 4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) QUANTITY OF DOLLARS Given this change, the dollar Supply Change due to a tariff Demand Fill in the following table with the effect of a tariff on the following items: Demand Supply (?) Demand for Loanable Funds Real Interest Rate National Saving Net…4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Supply IN Demand QUANTITY OF DOLLARS REAL EXCHANGE RATE (Units of foreign currency per dollar) Demand Supply ?What is meant by revenue deficit and what does it indicate
- "The national debt is a mortgage against the future of our children and grandchildren. We are forcing them to pay for our current consumption of goods and services" Evaluate this statement.4. Analyzing the effects of a trade deficit Suppose the U.S. government has just hired you to analyze the following scenario. Assume the U.S. agricultural industry grows concerned about the amount of fresh fruit imports to the United States, a practice that harms domestic producers. Industry experts claim that implementing a tariff on imports would reduce the size of the trade deficit. Complete the following exercise in order to help you analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) Supply QUANTITY OF DOLLARS Demand Demand -0- Supply Ⓡ4. Analyzing the effects of a trade deficit Suppose the U.S. government has just hired you to analyze the following scenario. Assume the U.S. agricultural industry grows concerned about the amount of fresh fruit imports to the United States, a practice that harms domestic producers. Industry experts claim that implementing a tariff on imports would reduce the size of the trade deficit. Complete the following exercise in order to help you analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) Supply QUANTITY OF DOLLARS Demand Demand Supply ?