Chapter 18: The Impacts of Government Borrowing

A reduction in government borrowing can:

give private investment an opportunity to expand.

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

higher interest rate

If the government's budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ________________ from government borrowing would be _____________________________ from that monetary policy.

higher interest rates; largely offset by the lower interest rates

A government will likely ____________________________ to encourage investment in technology R&D by private firms?

implement fiscal policy establishing tax incentives

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.

investment in physical capital; fiscal policy

A prolonged period of budget deficits may lead to ___________________.

lower economic growth

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

the trade deficit

_______________________________ can set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well

trade balance

A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy.

trade surplus

An increase in government borrowing can:

crowd out private investment in physical capital.

An increase in the government's budget surplus will cause the interest rate to:

decrease

When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?

central bank prints more money

Ricardian equivalence means that:

changes in private savings offset any changes in the government deficit.

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

private savings from U.S. households and firms; inflows of foreign financial investment.

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

productivity and economic growth

If a government decides to finance an investment in ________________ with higher taxes or ____________________ in other areas, it need not worry that it is crowding out private investment.

public physical capital; lower government spending

A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.

sustained pattern of large budget deficits

When a business firm makes an investment in physical capital, what is that investment subject to?

the discipline of the market

In most developed countries, the government plays a large role in society's investment in human capital through _________________________.

the education system