chapter 12

which of the following contributes to the popularity of the argument that government spending expands employment?

the employment generated by the additional spending is highly visible, while the employment crowded out by taxing, spending, and borrowing is largely unseen

the crowding out effect stresses that increased government borrowing to cover a budget deficit will cause

a higher interest rate and appreciation of the US dollar

what of the following is true of government debt?

between 2000 and 2015, federal debt owed to foreigners has risen from approximately 10% to 34% of GDP

the crowding out effect implies that a

budget deficit will increase real interest rates and, thereby, retard private spending

supply side economics stress that high marginal tax rates

discourage people from working harder and using their resources productively

public choice analysis indicates that it will be politically more attractive to

enact expansionary fiscal policy during a recession than to enact restrictive fiscal policy during an economic expansion

the new classical model implies that a shift to a more expansionary fiscal policy (the substitution of debt financing for taxes) will

exert little or no impact on the real interest rate, aggregate demand, and employment

if the government cuts the tax rate, workers get to keep

more of each additional dollar they earn, so work effort increase, and aggregate supply shift right

the crowding out effect implies that restrictive fiscal policy will

reduce real interest rates

the new classical model implies that a

substitution of debt for tax financing will leave aggregate demand and real output unchanged

raising rates as an element of discretionary fiscal policy is intended to reduce aggregate demand, but can also reduce aggregate supply if

the higher taxes cause workers to work less

a supply-side economist would stress which of the following

the impact of marginal tax rates on the supply and productivity of resources

which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

the increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall

measured as a share of GDP, the borrowing of the federal government from foreigners

was approximately 10% of GDP in 2000, but it soared to 34% of GDP in 2015

the crowding out effect indicates that budget deficits

will lead to additional borrowing and higher interest rates that will educe the level of private spending