What's the basis for arguing that deficits are likely to lead to lower living standards in the future?
A government deficit means that the government is dissaving. Unless the government's failure to save is offset by increased private saving, a government deficit is likely to be associated with lower national saving. Lower national saving means a lower capital stock, and hence lower living standards in the future.
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Why is the line between frictional and structural unemployment sometimes hard to draw?
What will be an ideal response?
Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and GDP Price Index rises. b. The real risk-free interest rate falls and GDP Price Index falls. c. The real risk-free interest rate rises and GDP Price Index falls. d. The real risk-free interest rate and GDP Price Index remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.