Chapter 16 Flashcards
Why is a balanced budget not always desirable?
If attempts were made to cut spending during recessions, that would simply create a bigger slump.
What does expansionary policy normally do to interest rates?
Raise them. There is a greater demand for bank reserves. People want to borrow money.
How is the multiplier affected by crowding out?
Because interest rates rise when Gov spending goes up, there will be less investment.
Structural budget deficit/surplus
Hypothetical deficit/surplus if the economy were operating at full employment.
On vs off budget surpluses
Social security is separate from the normal gov budget so it is considered “off budget.”
National Debt: a burden?
Not if owned by Americans, otherwise, maybe. It might reduce the capital stock through crowding out.
“Monetizing the deficit”
When the Federal Reserve buys government debt on the open market this turns that debt into an increase in money supply.
