ZuoTi.Pro
Question

1.The government gives a tax cut to the public, which is financed purely by the deficit....

1.The government gives a tax cut to the public, which is financed purely by the deficit. Use the bond market graph to explain the effect on interest rates.

2.Explain why money allows for increased specialization in production.

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

(Question 1)

Government's tax cut and deficit financing will make the government sell bonds to public, which will increase the supply of bonds, shifting bond supply curve to left, decreasing price and increasing quantity of bonds. Since bond price and interest rate are inversely related, lower bond price increases interest rate.

In following graph, D0 and S0 are initial bond demand and supply curves, intersecting at point A with initial price P0 and quantity of bonds Q0. As S0 shifts right to S1, it intersects D0 at point B with lower price P1 and higher quantity Q1.

NOTE: As per Chegg Answering Policy, 1st question has been answered.

0 0
Add a comment
Know the answer?
Add Answer to:
1.The government gives a tax cut to the public, which is financed purely by the deficit....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint:...

    5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint: look at page 26 of lecture slides in Lecture 7) A) causes inflation B) causes a current account deficit. C) raises interest rates. D) doesn't affect consumption 6) In the saving investment diagram, an increase in current output would A) shift the saving curve to the left B) shift the investment demand curve to the left. C) not shift the curves. D) shift the...

  • 1. Suppose that the bond market begins in equilibrium. Suppose also that the U.S. government decides...

    1. Suppose that the bond market begins in equilibrium. Suppose also that the U.S. government decides to invest more money into NASA, increasing the budget deficit. What is the effect of this action on equilibrium interest rates and bond prices? Use the bond market to show this.

  • Suppose that the bond market begins in equilibrium. Suppose also that the U.S. government decides to...

    Suppose that the bond market begins in equilibrium. Suppose also that the U.S. government decides to invest more money into NASA, increasing the budget deficit. What is the effect of this action on equilibrium interest rates and bond prices? Use the bond market to show this.

  • DQuestion 1 2 pts Usually a government budget deficit is good, as it stimulates the economy....

    DQuestion 1 2 pts Usually a government budget deficit is good, as it stimulates the economy. bad, because future persons have to pay more interest. good if for productive investment, otherwise unwise. O neither good nor bad; it's just money. DQuestion 2 2 pts Which is the effect of a reduction of income-tax rates? O supply side. O demand side. both supply and demand side O neither supply nor demand side. Question 3 2 pts In public choice theory, the...

  • 1. Use the bond market to address the following scenario. Assume the fiscal authority (government) decides...

    1. Use the bond market to address the following scenario. Assume the fiscal authority (government) decides to cut government spending, without changing taxes (run a smaller deficit). What do expect to happen to the price of government bonds? What do expect to happen to the yield to maturity on these bonds? Why do you think this is the case (that is, explain why the interest rate on these bonds either went up or down!)? Use a diagram to help explain...

  • Use the loanable funds model to analyze the effects of a government budget deficit: -Draw the...

    Use the loanable funds model to analyze the effects of a government budget deficit: -Draw the diagram showing the initial equilibrium of the loanable fund market in the below perpendicular axis. 1 point -Determine which curve shifts when the government runs a budget deficit (explain), and draw the new curve on your diagram. I point -What happens to the equilibrium values of the interest rate and investment? Explain. 1 point -Determine the relationship between the crowding-out effect and investment, explain...

  • 1) During an expansion, automatic stabilizers cause the federal deficit to a) remain unchanged. b) either...

    1) During an expansion, automatic stabilizers cause the federal deficit to a) remain unchanged. b) either increase or decrease. c) increase. d) decrease. 2) An example of an automatic stabilizer is a) changing the tax laws to increase the marginal tax rates. b) the food stamp program. c) the indexation of social security benefits to the consumer price index. d) the interest the government pays on loans. 3) Which of the following is a correct sequence of events during a...

  • 1. A cyclical deficit is the portion of the deficit that exists only when: the economy...

    1. A cyclical deficit is the portion of the deficit that exists only when: the economy is at potential output/income the economy is in an inflationary gap the economy is in a recessionary gap The Treasury is buying back bonds 2. When the U.S. Government runs a deficit, the Fed has to buy bonds to finance the deficit Treasury has to sell bonds to finance the deficit Federal government tax revenues must be less than Federal government spending Both B...

  • ** LUIE detination Fiscal policy Budget deficit Budget surplus National Debt Marginal Tax Rate Progressive tax...

    ** LUIE detination Fiscal policy Budget deficit Budget surplus National Debt Marginal Tax Rate Progressive tax Regressive tax Deficit Dove Deficit Hawk Automatic Stabilizers Laffer curve 1. Use the loanable funds model to explain why classicals argue that government deficits crowd out private spending. Explain why Keynesians argue that government deficits crowd in private spending. 2. Explain the logic behind "trickle down economics" (i.e the supply-side argument in favor of cutting taxes on the wealthy). Explain why Keynesians don't believe...

  • The government finances the budgetary deficit by A) from the public (through the sale of B)...

    The government finances the budgetary deficit by A) from the public (through the sale of B) issued by the U.S. Treasury), or from other countries (such as China), or from the Federal Reserve System (we’ll get into that in the next module). People holding U.S. government Treasury Bills, Treausry notes and Treasury bonds are C) (lenders/borrowers – fill in the number from the word bank) to/from the federal government. The total amount owed by the federal government is known as...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT