The Possibility of Capital Flight Is Likely to Be Greater

question 60

Multiple Choice

The possibility of capital flight is likely to be greater at higher levels of government debt because there is a greater:

• A) temptation to default on the debt.
• B) likelihood that the government will begin issuing indexed bonds.
• C) probability that a balanced budget will be adopted by the government.
• D) potential for tax smoothing policies to be eliminated.

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Definitions:

Deficits

Occurs when an entity, typically a government, spends more money than it receives in revenue over a specific period, resulting in a shortfall that needs to be financed.

Inflationary Gap

The difference between the actual level of output in an economy and the output level needed to achieve full employment without inflation.

Budget Surplus

A situation where income or revenues exceed expenditures over a specified period of time.

Aggregate Demand

Aggregate demand represents the total demand for goods and services within an economy at a given overall price level and time period.