Question

1. Budget deficits will (increase, decrease, or have no effect on)  the exchange rate value of the dollar.

2. Suppose that the government provides each taxpayer with a $1,000 tax rebate financed by issuing additional Treasury bonds.

Keynesian economists believe that this fiscal action will (increase, decrease, or have no effect on) aggregate demand, output, and employment, whereas economists who believe in crowding out argue that financing fiscal action by borrowing will (increase, decrease, or have no effect on) interest rates and (increase, decrease, or have no effect on) private investment, weakening the expansionary impact.

3. Did the shift of the federal budget from deficit to surplus during the 1990s weaken aggregate demand?

A. It weakened aggregate demand, but did not slow down the growth of the economy.

B. It weakened both aggregate demand and the growth of the economy.

C. It occurred without weakening aggregate demand, but did slow down the growth of the economy.

D. It occurred without weakening either aggregate demand or the growth of the economy.

Answer 1

1.

When budget deficit takes place, then it also indicates of trade deficit and it leads to weakening of the exchange rate value of USD.

2.

When government decreases taxes or gives tax rebates, then it is the example of expansionary monetary policy where the economy expands. Though, it has the critics that it is going to crowd out the private investment as rates increase in the economy.

3.

When there is a decrease in spending, then AD decreases. It also negatively affects the economic growth of the country.