The Diagram Below Shows the Budget Deficit Function for a Government

question 27

Multiple Choice

The diagram below shows the budget deficit function for a government in a hypothetical economy. FIGURE 31-1 Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A.If the government implements an expansionary fiscal policy by decreasing lump-sum taxes,then

• A)the budget deficit function would shift up.
• B)the budget deficit function would shift down.
• C)the budget deficit function would become steeper.
• D)the budget deficit function would become flatter.
• E)the size of the budget deficit would decrease as we move from point A to point B.

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Definitions:

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Natural Monopoly

A market in which a single firm can provide a good or service at a lower cost than any potential competitor, due to economies of scale.

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