Because increased government spending or tax cuts cause higher government deficits, they also contribute to a rise in total planned expenditures and aggregate demand.
Tasks: Explain in detail how each of the following will affect the net public debt, other things being equal: ?
1. Previously, the government operated with a balanced budget; however, recently, there has been a sudden increase in federal tax collections. ?
2.The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic Coast, and now government spending has risen substantially. ?
3.The Government National Mortgage Association, a federal government agency that purchases specific types of home mortgages, buys U.S. Treasury bonds from another government agency.
Solution
The net public debt will reduce with increased tax collection. The extra tax amount collected can help to reduce the debt level.
Increased spending on economy with lower revenue collection will only increase the debt level of the economy . The net debt will increase.
Buying government bonds in order to finance the spending will increase dent level. The net debt level will increase.
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Because increased government spending or tax cuts cause higher governm (1).docx
1. Because increased government spending or tax cuts cause higher government deficits, they also
contribute to a rise in total planned expenditures and aggregate demand.
Tasks: Explain in detail how each of the following will affect the net public debt, other things
being equal: ?
1. Previously, the government operated with a balanced budget; however, recently, there has
been a sudden increase in federal tax collections. ?
2.The federal government had been operating with a very small annual budget deficit until three
successive hurricanes hit the Atlantic Coast, and now government spending has risen
substantially. ?
3.The Government National Mortgage Association, a federal government agency that purchases
specific types of home mortgages, buys U.S. Treasury bonds from another government agency.
Solution
The net public debt will reduce with increased tax collection. The extra tax amount collected can
help to reduce the debt level.
Increased spending on economy with lower revenue collection will only increase the debt level
of the economy . The net debt will increase.
Buying government bonds in order to finance the spending will increase dent level. The net debt
level will increase.
