Some Questions

Discussion in 'Economy' started by Godran, Mar 20, 2011.

  1. Godran
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    Godran Rookie

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    Hey guys,

    I'm new here and have some questions from my class. I'm kinda stumped on them and would like to ask you guys on your opinions.

    Here they are:

    You are watching a presidental debate. When a candidate is questioned about his/her position on economic growth, the presidental candidate steps forward and says "We need to get this country growing again. We need to use tax incentives to stimulate savings and investment, and we need to get the budget deficit down so that the goverment stops absorbing our nations savings."

    1. If government spending remaining unchanged, what inconsistency is implied by the presidental candidate statement?
    2. If the candidate truly wishes to decrease taxes and decrease budget deficit, what has the candidate implied about his plans for government spending?

    Suppose you are a friend of Ben Bernanks, Fed's chairman. He comes over to your house best lunch and notices your couch. Mr. Bernanks is so "struck" by its beauty that he simply must have it for his office. Mr. Bernanks buys it from you for $1000 and since it is for his office he pays you with a check drawn from the federal reserve bank of New York.

    1. Are there more dollars in the economy than before? Why?
    2. If the fed wishes to change the money supply, why do you suppose that the fed doesn't buy and sell couches, real estate, and so on?
    3. If the Fed doesn't want the money supply to rise when it purchases new furniture, what might it do to offset the purchase?

    Any help would be greatly appreciated. Thanks!
     
  2. Hondagirl
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    Hondagirl Rookie

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    I have those same questions... ;)
     
  3. California Girl
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    California Girl BANNED

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    This is a grown up forum.
     
  4. william the wie
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    william the wie Gold Member

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    First few questions which particular politician made those particular statements, where and when? (unedited source please)

    Second set of questions scroll down there are huge numbers of threads on the Fed, banking and monetizartion here you have, perhaps inadvertently, commingled many things.
     
  5. Toronado3800
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    Toronado3800 VIP Member

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    I will address the sofa question first.

    If the Government issues bonds to buy a sofa from my work they are creating future debt and increasing the amount of money in the economy today.

    The Government buys and sells lots of stuff. Ask farmers and the reserve oil supply. Generally the government does not try to make a direct profit.

    If you don't want to raise the amount of money in immediate circulation spend money you actually raised in taxes. Is there a trick I am not seeing?

    ****************
    The first part is trickier. I perhaps do not understand. Most years are non-recession years, the GDP increases and inflation usually occurs. Holding spending flat at $xxx,xxx,xxx,xxx in effect decreases the size of government as a percentage of our GDP. Is that what you are looking for?

    Decrease taxes and decrease the budget deficit implies lower spending at a rate which surpasses your tax decrease. Is this more complicated than it sounds?

    The part about needing to get this country going again implies tax cuts for things which the candidate thinks will help the economy. Hopefully not tax cuts for companies transporting Chinese DVD players lol
     

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