Homework 12
The Impacts of Government Borrowing & Macroeconomic Policy Around the World
Answer the following based on chapters 18 and 19 of OpenStax. Ensure that any formulas used are clearly shown by either using a formula in Excel or writing the formula out—as you would for a math class.

Question Point Value
1 20
2 20
3 10
4 10
5 20
6 20
Total 100

Question 1
Answer the following questions regarding The Impacts of Government Borrowing.
In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?
Why have many education experts recently placed an emphasis on altering the incentives faced by U.S. schools rather than on increasing their budgets? Without endorsing any of these proposals as especially good or bad, list some of the ways in which incentives for schools might be altered.
What are some steps the government can take to encourage research and development?
What is the theory of Ricardian equivalence?

Question 2
Assume an economy has a budget surplus of 12,000, private savings of 4,000, and investment of 5,000.
Write out a national saving and investment identity for this economy.
What will be the balance of trade in this economy?
If the budget surplus changes to a budget deficit of 1000, with private saving and investment unchanged, what is the new balance of trade in this economy?

Question 3
Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected?

Question 4
Answer the following questions about The Impacts of Government Borrowing —be sure to show your calculations.
Based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?
If a government runs a budget deficit of $10 billion dollars each year for ten years, then a surplus of $1 billion for five years, and then a balanced budget for another ten years, what is the government debt?

Question 5
Answer the following questions about Macroeconomic Policy Around the World.
What other factors, aside from labor productivity, capital investment, and technology, impact the economic growth of a country? How?
What are the two types of unemployment problems?
What is the primary way in which economists measure standards of living?
Demography can have important economic effects. The United States has an aging population. Explain one economic benefit and one economic cost of an aging population as well as of a population that is very young.
Explain why is it difficult to set aside funds for investment when you are in poverty.

Question 6
Retrieve the following data from The World Bank database
http://databank.worldbank.org/data/home.aspx
for India, Spain, and South Africa for the most recent year available:
GDP in constant international dollars or PPP
Population
GDP per person in constant international dollars
Mortality rate, infant (per 12,000 live births)
Health expenditure per capita (current U.S. dollars)
Life expectancy at birth, total (years)
Using the data above, answer the following questions.
Prepare a chart that compares India, Spain, and South Africa based on the data you find. Describe the key differences between the countries. Rank these as high-, medium-, and low-income countries, explain what is surprising or expected about this data.
Use the Rule of 72 to estimate how long it will take for India, Spain, and South Africa to double their standards of living.