What will happen to the government debt

Reference no: EM133736369

Problem

The government budget of the country of Geeland is currently balanced. The government budget is composed of tax revenues (T), transfer payments (TR), and government spending (G).

I. Assume the economy moves into a recession and there is no discretionary policy action.

1. Will the government budget move into a deficit or a surplus in the short run? Explain using the appropriate components of the government budget identified above.

2. Based on your answer to part (1), what will happen to the government debt?

II. Based on your answer to part (1), identify one specific fiscal policy action that will balance the budget.

III. How will the fiscal policy action from part (II) affect the actual unemployment rate in the short run? Explain.

IV. Did the government efforts to maintain a balanced budget make Geeland's recession more severe or less severe in the short run? Explain

Reference no: EM133736369

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