Author Question: In the wake of the financial crisis of 2007-2009, the debt-to-GDP ratio has risen in many countries ... (Read 125 times)

lracut11 · **on:** Jun 30, 2018

In the wake of the financial crisis of 2007-2009, the debt-to-GDP ratio has risen in many countries around the world. Should the expenditures enabled by this debt be considered government consumption or government investment?

What will be an ideal response?

Question 2

Real business cycle proponents argue that

a. recessions are caused by movements of output away from the natural rate of output.
b. prices and wages are sticky.
c. macroeconomics should be based on the same assumptions as microeconomics.
d. monetary policy is important in determining recessions.
e. none of the above.

jharrington11 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Probably, government investment. Since a well-functioning financial sector is essential for economic growth, its rescue may be viewed as an investment in the economy's future productivity. Moreover, the avoidance of an economic depression ensures that economic activity will continue and be taxed, enabling payments on interest and principal.

Answer to Question 2

C