Q11 of 14 Page 74

Explain the relation between government deficit and government debt.

In order to meet the government deficit, the government relies upon borrowings, which creates government debt. So the concept of deficit and debt are closely related. Deficit is a flow which adds to the stock of debt.


More from this chapter

All 14 →
9

Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following

(a) Government purchases increase by 20 (b) Transfers decrease by 20.

 10

Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

 12

Does public debt impose a burden? Explain.

 13

Are fiscal deficits inflationary?