Question

Explain how each of the following will affect the net public​ debt, other things being equal. a. ​Previously, the government operated with a balanced​ budget, but recently there has been a sudden increase in federal tax collections. The net public debt ▼ increases remains unchanged decreases . b. 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. The net public debt ▼ increases remains unchanged decreases . c. The General National Mortgage​ Association, a federal government agency that purchases certain types of home​ mortgages, buys U.S. Treasury bonds from another government agency. The net public debt ▼ increases decreases remains unchanged .

Answer 1

Answer:

A. - The net public debt decreases

The net public debt decreases because the government has obtained more funds in tax revenue. For this reason, the government will likely run a budget surplus.

B. - The net public debt increases

The government was already running a budget deficit (albeit a small one). With the effects of the hurricane, the government will have to spend more to help the people affected, and will likely have to borrow even more, increasing its deficit.

C. - The net public debt remains unchanged

There was a transfer of funds from one government agency to the other, and the net effect of such transfer is likely to be very small to make any significant change in the net public debt. The net public debt remains unchanged.