According to the traditional view of government debt, if taxes are cut without a cut in government spending, then in the United States this situation will lead to ______ net indebtedness on the part of the United States to foreign countries and ______ net exports.

Question

Quizplus · Accepted Answer

According to the traditional view of government debt, cutting taxes without reducing government spending increases the budget deficit. This typically requires the government to borrow more, often from foreign sources, leading to greater net indebtedness to foreign countries. To finance this increased debt, the U.S. might sell more bonds to foreigners, which can lead to a higher demand for the dollar, appreciating its value. An appreciated dollar makes U.S. exports more expensive and imports cheaper, thus reducing net exports. Hence, the situation leads to more net indebtedness and fewer net exports.

According to the Traditional View of Government Debt, If Taxes