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Chapter 10: Q. 17 (page 266)

For each of the following, indicate which type of government spending would justify a budget deficit and which would not.

a. Increased federal spending on Medicare

b. Increased spending on education

c. Increased spending on the space program

d. Increased spending on airports and air traffic control

Short Answer

Expert verified

Justified- a. and b.

Not justified- c. and d.

Step by step solution

01

Step1. Introduction

Budget deficit refers to a situation when the expenditure exceeds the receipts (revenue). It is indicative of how well the financial situation of the economy is.

02

Step2. Explanation

As such all investments and expenditure that leads to economic development is important and justified. But, if we need to prioritize the most crucial ones, these are the justified ones-

a. and b. Investments made, and hence the expenditure incurred for the economic development in 2 of the most crucial indicators of well being, i.e. the healthcare and education should always be prioritized as it is decisive for the future developments.

c. and d. i.e. investments in space programs and airports & air traffic are also justified in a way, as technology (Space programs) and ease of transportation is crucial for the future, but in my opinion, it comes secondary to education and healthcare.

The bifurcation into justified and not justified is subjective.

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Most popular questions from this chapter

Some economists warn that the persistent trade

deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.

Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is occurring in an economy that performs poorly. What key factor or factors are making the difference in the outcome that results from a trade surplus?

Occasionally, a government official will argue that

a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

In recent decades, has the U.S. trade balance usually been in deficit, surplus, or balanced?

Table 10.7 provides some hypothetical data on

macroeconomic accounts for three countries represented

by A, B, and C and measured in billions of currency

units. In Table 10.7, private household saving is SH,

tax revenue is T, government spending is G, and

investment spending is I.


ABC
SH700500600
T00500500
G600350650
I800400450

Table 10.7 Macroeconomic Accounts

a. Calculate the trade balance and the net inflow of

foreign saving for each country.

b. State whether each one has a trade surplus or

deficit (or balanced trade).

c. State whether each is a net lender or borrower

internationally and explain.
See all solutions

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