Graph 4 Graph 5 Graph 6 16) Consider the exchange rate between the U.S. doilar a

Question

Graph 4 Graph 5 Graph 6 16) Consider the exchange rate between the U.S. doilar and the euro. Let the foreign currency be onthe x-axis as in class. For each of the following, chose one of the graphs above which best iBustrates the changes in the exchanges rate. a) Europeans start a boycott of U.S. goods b) The European Central Bank raises interest rates. c) Speculators believe the euro will depreciate in the near future d) Incomes fall in the U.S, due to another housing crisis Would each of the following cause an increase, decrease or no change in the budget deficit? a) a cut in the corporate tax rate b) an increase in the number of retired persons collecting Social Security c) a downward revision of the natural rate of unemployment 17) d) an increase in GDP 18)True or False? a) The CPI measures the price changes of all consumer goods. b) The Federal Reserve sets interest rates by telling the fed funds dealers what to charge. c) A discouraged worker is unsatisfied with his/her job. d) Bond prices rise when interest rates rise. e) At the natural rate of unemployment, there is no tendency for wages to rise or fall 1) Our children will have to pay off the massive U.S. debt If you were speculating in the bond market and you expected the Federal Reserve to lower the fed funds rate tomorrow, what would you do today? 19)

Explanation / Answer

Question 17

(a) A cut in the corporate tax rate -

A cut in the corporate tax rate will result in a decrease in corporate tax revenue leading to overall decrease in tax revenue.

Given the government spending, this decrease in tax revenue will increase budget deficit.

So, this situation will cause an increase in the budget deficit.

(b) An increase in the number of retired persons collecting Social Security -

As number of persons collecting Social Security increases, government's mandatory spending will also increase.

Given, the tax revenue, this increase in government spending will increase the budget deficit.

So, this situation will cause an increase in the budget deficit.

(c) A downward revision of the natural rate of unemployment -

This downward revision will neither impact the tax revenue nor the government spending.

So, this situation will cause no change in the budget deficit.

(d)

An increase in GDP -

Increase in GDP generally leads to increase in tax revenue collection and reduction in government spending on some programs like unemployment insurance etc.

This results in simultaneous increase in tax revenue and decrease in government spending resulting in a decrease in budget deficit.

So, this situation will cause a decrease in the budget deficit.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.