The government's budget constraint is best represented by which of the following equations?
A) Government purchases of goods and services + Transfer payments + Interest payments on existing debt = Tax revenue + Newly issued government bonds + Seigniorage
B) Government purchases of goods and services + Transfer payments + Tax revenue = Interest payments on existing debt + Newly issued government bonds + Seigniorage
C) Tax revenue - Transfer payments = Government purchases of goods and services + Interest payments on existing debt + Newly issued government bonds + Seigniorage
D) Government purchases of goods and services + Newly issued government bonds + Interest payments on existing debt = Transfer payments + Tax revenue + Seigniorage
A
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According to David Ricardo, an increase in government spending without any tax increase will not increase aggregate demand because
A) consumers will increase their consumption proportionately more than Keynesian economists believe they will. B) consumers will save less than they otherwise would have. C) consumers will consume less and save more to prepare for increased taxes in the future. D) the private sector is more likely than the public sector to spend any extra income on national defense.
Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save
a. less in the current period if the substitution effect is greater than the income effect. b. less in the current period if the income effect is greater than the substitution effect. c. more in the current period if the substitution effect is greater than the income effect. d. more in the current period, regardless of the sizes of the income and substitution effects.