Answered: How could a greater fiscal deficit…

Business

Economics

How could a greater fiscal deficit create a greater trade deficit?

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter11: Fiscal Policy And The Federal Budget

Section: Chapter Questions

Problem 24QP

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Question

1.        How could a greater fiscal deficit create a greater trade deficit?
   2.        What would you do to reduce the deficit?
   3.        What is the opportunity cost of government spending on servicing the interest on the debt.
   4.        If the federal government wished to reduce the deficit to any significant degree
              without raising taxes, where would the reduced spending likely to have to come from?
   5.        Assume the federal government replaces the federal income tax with a sales tax
              placed on consumption expenditures. Analyze the impact of this tax change
              on taxation efficiency and equity.

Definition Definition Situation in which a country spends more on imports than it makes through exports. When a trade deficit exists, net exports will be negative. Trade Deficit = (Imports) - (Exports)

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Transcribed image text: Assume that a government begins to run a large budget deficit. We might expect a simultaneous
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