# Problem%20Set%20_6%20ANSWERS%20_Fall%202011_ - Name SID GSI...

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Problem Set #6 (Fall 2011) 1/6 Name: ____________________________ SID: ____________________________ GSI: ____________________________ Econ 100B Macroeconomic Analysis Professor Steven Wood Fall 2011 Problem Set #6 ANSWERS Due: December 1, 2011 (in class before 3:50:01 p.m.) Place your completed problem set in the box near the entrance. Please sign the following oath: The answers on this problem set are entirely my own work. I neither copied from the work of others nor allowed others to copy from my work. _______________________________________ Signature Any problem set turned in without a signature will be assigned a grade of zero. Problem Set Instructions 1. You MUST complete your problem set on this template. 2. Graphs and equations MAY be drawn by hand. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. 3. Explanations MUST be word-processed. Your explanations should be succinct and to the point.

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Problem Set #6 (Fall 2011) 2/6 A. Multiple Choice Questions (15 points) . Circle the letter corresponding to the best answer (3 points each). 1. Suppose government purchases are permanently increased by ten percent with no change in tax rates. In the long run, the resulting deficit will disappear: a. Only if the government debt is sold to foreigners. b. Only if economic growth raises tax revenue by ten percent. c. Unless the money is spent entirely on government consumption. d. Only if government spending is brought back down to the original level. 2. The phenomenon of crowding-out suggests that the positive impact of budget deficits on economic activity is reduced by:
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