Loanable Funds

In the short run, how would a government's budget deficit, national debt, and real output change if government spending increases with no change in taxes?

Deficit - increase, Debt - increase, Real Output - increase

The crowding out effect of government spending will be large if

Investment is highly sensitive to changes to the interest rate.

Which is true about the expected real interest rate?

It is negative if the expected inflation rate exceeds the nominal interest rate.

Assume a country's government has a balanced budget. If the economy goes into a recession, what will happen to the governments budget in the short run

It will be in deficit, because there will be an automatic decrease in tax reciepts.

An increase in government deficit spending can crowd out private investment by

increasing the real interest rate

If an increase in government spending financed by borrowing crowded out an equal amount of private spending, which of the following would result?

Aggregate demand would remain unchanged.

Assume that the government finances its spending from borrowing from the public. If the government increases deficit spending, the price of previously issued bonds and real interested rate will change in which of the following ways?

Bond prices decrease, Interest rate increases

Which of the following is most likely to increase the real interest rate in Country T?

Country T is viewed as having increased political and economic risk

Increases spending on which of the following contributes most to long term economic growth?

Education and infrastructure

A country's government runs a budget deficit when which of the following occurs in a given year?

Government spending exceeds tax revenues

AN increase in government spending financed by increased borrowing will most likely change the real interest rate and the gross private domestic investment in which of the following ways?

Real interest rate increases, Gross Private Domestic Investment decreases

When the total amount of the government spends equals tax revenues in any given year which of the following must remain constant

The national debt

An increase in the government budget deficit is most likely to result in an increase in which of the following?

The real interest rate

In the long run, government deficit spending will most likely

raise real interest rates

The lonable funds market is best described as bringing together

savers and borrowers