Suppose the government of a country has a high level of debt. Which of the following statements about this debt is false?a.If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's taxpayers.b.If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's citizens.c.A high debt might make lenders worry if the government could repay its loans and so raise the interest rate people wanted when they lent to itd.A high debt would make it difficult for the government to respond to any future downturns in its economy with expansionary fiscal policy.Clear my choiceQuestion 2Not yet answeredMarked out of 1.00Flag questionQuestion textThe government spending multiplier is _____________.a.indirectly proportional to the MPCb.Lower than the tax revenuec.directly proportional to the MPCd.Higher than the MPCClear my choiceQuestion 3Not yet answeredMarked out of 1.00Flag questionQuestion textThe higher is the MPS, _____________.a.Lower is the multiplier.b.Higher is the investment spendingc.Higher is the equilibrium income.d.Higher is the multiplierClear my choiceQuestion 4Not yet answeredMarked out of 1.00Flag questionQuestion textThe function of investment spending shifts to the left when __________.a.The interest rate risesb.The interest rate fallsc.Business expectations improved.Business expectations get worseClear my choiceQuestion 5Not yet answeredMarked out of 1.00Flag questionQuestion textWhich of the following is a the monetary policy instrument?a.An increase in direct taxesb.Open-market operationsc.Freezing pensionsd.A cut in government purchase of goods and servicesClear my choiceQuestion 6Not yet answeredMarked out of 1.00Flag questionQuestion textWhich of the following is not an instrument of fiscal policy?
Question
Suppose the government of a country has a high level of debt. Which of the following statements about this debt is false?a.If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's taxpayers.b.If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's citizens.c.A high debt might make lenders worry if the government could repay its loans and so raise the interest rate people wanted when they lent to itd.A high debt would make it difficult for the government to respond to any future downturns in its economy with expansionary fiscal policy.Clear my choiceQuestion 2Not yet answeredMarked out of 1.00Flag questionQuestion textThe government spending multiplier is _____________.a.indirectly proportional to the MPCb.Lower than the tax revenuec.directly proportional to the MPCd.Higher than the MPCClear my choiceQuestion 3Not yet answeredMarked out of 1.00Flag questionQuestion textThe higher is the MPS, _____________.a.Lower is the multiplier.b.Higher is the investment spendingc.Higher is the equilibrium income.d.Higher is the multiplierClear my choiceQuestion 4Not yet answeredMarked out of 1.00Flag questionQuestion textThe function of investment spending shifts to the left when __________.a.The interest rate risesb.The interest rate fallsc.Business expectations improved.Business expectations get worseClear my choiceQuestion 5Not yet answeredMarked out of 1.00Flag questionQuestion textWhich of the following is a the monetary policy instrument?a.An increase in direct taxesb.Open-market operationsc.Freezing pensionsd.A cut in government purchase of goods and servicesClear my choiceQuestion 6Not yet answeredMarked out of 1.00Flag questionQuestion textWhich of the following is not an instrument of fiscal policy?
Solution
a. If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's taxpayers.
This statement is false. Even if the debt is owned by the country's own citizens, it would still be a burden to the country's taxpayers. The government would need to pay interest on the debt, which would require taxpayer money. Additionally, if the government needs to repay the principal amount of the debt, it would also require taxpayer funds.
b. If all the debt was in the form of bonds owned by the country's own citizens, then the debt would not be a burden to the country's citizens.
This statement is also false. If the debt is owned by the country's own citizens, it would still be a burden to the country's citizens. The government would need to allocate funds to pay interest on the debt, which could potentially lead to higher taxes or reduced government spending in other areas. This would impact the citizens of the country.
c. A high debt might make lenders worry if the government could repay its loans and so raise the interest rate people wanted when they lent to it.
This statement is true. When a government has a high level of debt, lenders may become concerned about the government's ability to repay its loans. As a result, lenders may demand higher interest rates when lending to the government. This is because they perceive a higher risk of default, and they want to be compensated for that risk.
d. A high debt would make it difficult for the government to respond to any future downturns in its economy with expansionary fiscal policy.
This statement is true. When a government has a high level of debt, it limits its ability to implement expansionary fiscal policies during economic downturns. This is because the government may already be facing budget constraints due to the debt burden. Implementing expansionary fiscal policies, such as increased government spending or tax cuts, would further increase the debt and potentially worsen the country's financial situation.
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