1 TrueFalseDefend aThe standardized employment budget defici

1/ True/False/Defend:

a.The standardized employment budget deficit is more severe (has higher highs and lower lows) than the actual budget deficit over a business cycle.

b. If the government gives a $300 tax cut to everyone in the country, then interest rates will rise

2/ Does it make more sense to debate the level of debt or the debt to GDP ratio? Explain

Solution

Q1.

a.

True

Employment budget at the country’s potential GDP is standardized employment budget, which is prepared by the country’s government. Since it depends on potential GDP, which is higher in expansion and lower in recession compare to actual data, such budget deficit becomes severe.

b.

False

A tax-cut increases money supply in the market. Taking loan on that time may not be required because people have money; it makes the interest rate to drop for making the loan attractive; therefore, interest should not rise.