Consider the Government's Budget Deficit Function, Graphed with Dollars on the Vertical

question 4

Multiple Choice

Consider the government's budget deficit function, graphed with dollars on the vertical axis and real GDP on the horizontal axis. This function is downward sloping because as real GDP

• A)rises, tax revenues fall, decreasing the deficit or increasing the surplus.
• B)falls, the budget deficit function shifts down.
• C)rises, tax revenues rise, decreasing the deficit or increasing the surplus.
• D)falls, tax revenues rise, decreasing the deficit or increasing the surplus.
• E)rises, it leads to increasing debt- service payments.

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Definitions:

Loss Contingencies

Possible financial losses that companies may face as a result of future events that have uncertain outcomes, necessitating disclosure in financial statements if they are both probable and estimable.

Gain Contingencies

Gain contingencies are potential increases in economic benefits to an organization that arise from events whose outcomes or realizations are uncertain until they occur.

Fiscal Year

A one-year period that companies and governments use for financial reporting and budgeting, which does not necessarily align with the calendar year.

Coupons

Debt instruments offering interests or discounts issued by companies to raise capital, or vouchers offering discounts on goods and services.