Suppose the Real Rate of Interest Is 3% and the Growth

question 103

Multiple Choice

Suppose the real rate of interest is 3% and the growth rate of real GDP is 1%.If the government has a positive stock of outstanding debt and its goal is to hold the debt-to-GDP ratio constant at its current level,then it

• A)must run a cyclically balanced budget.
• B)must run an annually balanced budget.
• C)must run a primary budget deficit.
• D)must run a primary budget surplus.
• E)must eliminate the overall deficit.

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Definitions:

Fixed Manufacturing Overhead

The costs that do not change with the level of production, including costs such as rent, insurance, and salaries for management.

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a specific product and constitute a significant portion of its production cost.

Direct Labor

The labor costs directly tied to the production of goods, including wages of workers actively engaged in manufacturing.

Variable Costs

Costs that change in proportion to the level of production or sales activity.