1. The government of Bugonia will spend $13 millon more this year than it receives in revenue. Which of the following statements can be made with certainty?
A. Bugonia's debt is growing
B. Bugonia is experiencing a budget deficit (I think this is the answer)
C. Bugonia will experience a trade deficit
D. Bugonia will experience a trade surplus

2. Which of the following is a MONETARY policy that might be used to reduce inflation?
A. decreasing taxation
B. decreasing the discount rate
C. open-market sales
D. increasing government spending

3. Due to inflation, the Federal Reserve decides to decrease the money supply. Which of the following will the Federal Reserve MOST LIKELY do?
A. lower the discount rate
B. implement an "easy money" policy
C. buy bonds
D. Raise the reserve requirement for banks

Please help if you can. Thank you!

Question

1. The government of Bugonia will spend $13 millon more this year than it receives in revenue. Which of the following statements can be made with certainty? 
A. Bugonia's debt is growing 
B. Bugonia is experiencing a budget deficit (I think this is the answer)
C. Bugonia will experience a trade deficit 
D. Bugonia will experience a trade surplus

2. Which of the following is a MONETARY policy that might be used to reduce inflation? 
A. decreasing taxation 
B. decreasing the discount rate 
C. open-market sales 
D. increasing government spending

3. Due to inflation, the Federal Reserve decides to decrease the money supply. Which of the following will the Federal Reserve MOST LIKELY do? 
A. lower the discount rate 
B. implement an "easy money" policy 
C. buy bonds 
D. Raise the reserve requirement for banks

Please help if you can. Thank you!

jim_thompson5910 · Answer

For #1, the deficit adds to the overall debt. So A is also true as well.

kj4uts · Answer

I think:
1. B. Bugonia is experiencing a budget deficit 
2. C. open-market sales
3. D. Raise the reserve requirement for banks

kj4uts · Answer

what would be the better answer for number 1 because I can only choose 1 answer.

jim_thompson5910 · Answer

well there's definitely a deficit, so B is definitely an answer

I guess A will depend on if the government has a lot of cash stored elsewhere or something

kj4uts · Answer

Yeah I think b. would be the better answer even though a is true also.

kj4uts · Answer

I am just stuck on 2. and 3. but:

2. C. open-market sales
3. D. Raise the reserve requirement for banks

Is what I think are the answers not sure if it is right though?

kj4uts · Answer

This person explained numbers 2 and 3 also just not sure if it right. https://answers.yahoo.com/question/index?qid=20150331084448AAcjAbU

jim_thompson5910 · Answer

#2 https://research.stlouisfed.org/aggreg/meeks.pdf see attached image (where I've highlighted)

jim_thompson5910 · Answer

I agree with your answer to #2. If there's too much money out there, the Fed will conduct open market sales to sell the securities the Fed has. This effectively shrinks the money supply.

jim_thompson5910 · Answer

3D looks good too because the other options encourage more growth of the money supply, causing higher inflation

kj4uts · Answer

Ok thank you for your help with my economics questions :)

jim_thompson5910 · Answer

And surprisingly enough, the person on Yahoo Answers actually knows what they are talking about. They are correct about 2 and 3.