With the Expenditures Programs and the Tax System Shown in the Diagram

question 347

Multiple Choice

With the expenditures programs and the tax system shown in the diagram,

• A) the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K.
• B) the public budget will be a destabilizing force at all levels of GDP.
• C) deficits will occur at income levels below K, and surpluses above K.
• D) deficits will occur at income levels below H, and surpluses above H.

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Definitions:

Exercise Price

The exercise price is the price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, representing the average difference from the mean; widely used in finance as a measure of investment risk.

Arbitrage Opportunity

The chance to buy an asset at a low price in one market and simultaneously sell it at a higher price in another, securing a risk-free profit.

Long-short Equity Fund

A type of investment fund that takes both long and short positions in stocks, aiming to profit from increases in the prices of some stocks and decreases in the prices of others.