Question

select all of the following things that increase government deficits ceterius paribus (all else constant) .

		a. Providing free college education to and paying down individual's student loan debt.
		b. Building a wall between the US and Mexico
		c. Increasing government spending on military
		d. Tax cuts
		e. Increasing tariffs
		g. Contractionary fiscal policy

2. If the US decreases its deficit, it will begin to decrease its debt. (True or false)

3. The US's trade deficit with China means that the US is in debt to China. (True or False

Answer 1

1. The following things that increase government deficits ceterius paribus (all else constant):

Option a. Providing free college education to and paying down individual's student loan debt.

Option b. Building a wall between the US and Mexico

Option c. Increasing government spending on military

Option d. Tax cuts

Government Deficit means when government's expenditure exceeds government's income. In the above options, Option a, b, and c all increase government's expenditure while option d reduces government's income since taxes are reduced. Option e i.e. increasing tariffs increases government's income while Option g. Contractionary fiscal policy reduces government's expenditure hence they do not increase government deficits.

2. False

To decrease US's deficit, the US should raise money from the public i.e it should take debt from public by selling treasury bonds to decrease its' deficit, So, in this case, if the US decreases its deficit, it will begin to increase its debt. The US can decrease its deficit by lending money to itself. Even more, the US can decrease its deficit simply by reducing its expenditures i.e by lowering benefits to its citizens or by raising taxes.

3. False

The US trade deficit with China means that the imports from China are greater than the exports to China. This does not mean that the US is in debt to China, debt simply means taking loan from someone whereas imports being greater than the exports, doesn't mean that the US has borrowed money from China.