A Serious Burden of a Budget Deficit and an Increase

question 100

Multiple Choice

A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large budget deficits

• A)discourage consumption and therefore lead to production cutbacks.
• B)lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople.
• C)discourage investment and therefore may reduce the growth of the nation's capital stock.
• D)discourage foreign investment and therefore limit employment opportunities.

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Definitions:

Cobb-Douglas Preferences

A utility function used in economics to represent preferences of consumers, characterized by goods being perfect substitutes or complements to some degree.

Utility Function

An expression used in economics to quantify the happiness or satisfaction gained from consuming a set of goods or services.

Consumption Bundle

A combination of different goods and services that a consumer chooses to purchase at a given time.

Quasilinear Preferences

Preferences represented by utility functions where the marginal utility of consumption is constant irrespective of other goods consumed.