Question Details

We can consume more than we produce by selling government bonds to 



1. Crowding out involves a reduction in 
a) I (investment demand) b) I and C (consumption demand) 
c) I, C, and G (government demand) d) I, C, G and X (export demand) 
2. A decision by the government to increase its spending by $2 billion will have the largest impact on aggregate demand when it is financed by selling bonds to 
a) the public b) the commercial banks 
c) the central bank d) it does not matter who buys the bonds 
"First, a rise in the debt/GDP ratio means that the current generation is consuming goods and services at the expense of future generations. We are in effect stealing from the future by consuming more than we can produce." 
3. We can consume more than we produce by selling government bonds to 
a) the public b) foreigners c) the central bank d) all of the above 
4. We are not stealing from the future if the borrowing 
a) is from foreigners b) happens at full employment 
c) is spent on old age security payments d) results in a more productive economy 
5. "As to how the federal deficit would be cut back, the economists rule out tax increases. Instead, the cuts must come on the expenditure side with the average growth of federal expenditures - including interest payments on the national debt - kept below average growth of GDP." Why would these economists favor cutting back government spending over raising taxes? 
a) raising taxes is hated by voters 
b) they prefer less government control over the economy 
c) cutting government spending reduces the deficit more than does raising taxes 
d) the multiplier effect of cutting government spending is larger than the multiplier effect of raising taxes



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