In the Long-Run Framework, Budget Surpluses

question 64

Multiple Choice

In the long-run framework, budget surpluses:

• A)should be run whenever output dips below potential output.
• B)should never be run since they crowd out investment in the short run.
• C)are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment.
• D)should be run on a permanent basis since they boost saving and investment and stimulate economic growth.

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Definitions:

Marginal Cost

The financial requirement for producing a supplementary unit of a product.

Average Total Cost

The total cost divided by the quantity of output produced, representing the average cost per unit of output.

Long-Run Cost Diagram

A graphical representation depicting the relationship between output and the long-term costs of production when all inputs can be varied.

Profit-Maximizing Output

The level of production at which a firm achieves the highest possible profit, where marginal revenue equals marginal cost.