Deficits Are Correlated Inversely with

question 17

Multiple Choice

Deficits are correlated inversely with

• A) the rate of growth of GDP because tax revenues climb and transfer payments contract as GDP swells.
• B) inflation because tax revenues climb and expenditures automatically fall during periods of inflation.
• C) the rate of unemployment because people who are out of work pay no tax and swell the roles of those eligible for transfer payments.
• D) interest rates because higher rates mean higher earnings on government bonds and thus more income from nontax sources.
• E) none of the above.

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Definitions:

Annual After-Tax Cash Flow

The amount of money a company or individual has left after all income taxes are paid, considered over a yearly period.

Present Value

The current value of a future sum of money or stream of cash flows, taking into account a specific rate of interest.

After-Tax Cash Flow

The amount of cash a company generates after accounting for all taxes, an important measure for assessing financial performance and investment potential.

After-Tax Payback Period

The amount of time it takes for an investment to generate enough after-tax returns to recover the initial cost of the investment.