If a Government Increases Its Budget Deficit, Which of the Following

question 128

Multiple Choice

If a government increases its budget deficit, which of the following best predicts the effects?

• A)Interest rates rise and the trade balance moves toward surplus.
• B)Interest rates rise and the trade balance moves toward deficit.
• C)Interest rates fall and the trade balance moves toward surplus.
• D)Interest rates fall and the trade balance moves toward deficit.

---

Definitions:

Permanent Differences

Differences between taxable income and accounting income that arise due to items recognized in one manner for accounting purposes and in another manner for tax purposes, and they do not reverse over time.

Permanent Differences

Differences between taxable income and accounting income that originate in one period and do not reverse over time, affecting the effective tax rate.

Temporary Differences

Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base, leading to deferred tax assets or liabilities.

Taxable Income

Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year.