Question

23. Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the: A) boomerang effect. B) expansionary countereffect. C) ricochet effect. D) crowding-out effect. 24. Suppose the economy is growing at 4% a year, inflation is measured at 0.5% a year, and the federal deficit is relatively high. An economist who suggests that we do nothing is advocating: A) an annually balanced budget. B) a cyclically balanced budget. C) a functional finance approach to federal budgeting. D) a full employment balanced budget. debt. 25. Public debt held by foreigners is known as A) out-of-country B) internally held C) externally held D) improper

Answer 1

23. Option D

Explanation: In crowding out effect, government borrowing reducing private investment by increasing the interest rate.

24. Option B

Explanation; In cyclically balanced budget, the government budget has no surplus or deficit over the business cycle.

25. Option B

Explanation: When public debt is held by foreigners, it is named externally held debt.