Because increased government spending or tax cuts cause higher government deficits, they also contribute to a rise in total planned expenditures and aggregate demand.

Tasks: Explain in detail how each of the following will affect the net public debt, other things being equal?

1. Previously, the government operated with a balanced budget; however, recently, there has been a sudden increase in federal tax collections. ?

2. The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic Coast, and now government spending has risen substantially. ?

3. The Government National Mortgage Association, a federal government agency that purchases specific types of home mortgages, buys U.S. Treasury bonds from another government agency.

-Use the following data to work Problems 4 to 5. In June 2011, the exchange rate was 0.69 Euros per U. S. dollar. In June 2012, the exchange rate was 0.79 Euros per U. S. dollar.

4. Explain the exports effect of this change in the exchange rate.

5. Explain the imports effect of this change in the exchange rate.