What Is Most Likely to Happen If Canada Increases Its

question 63

Multiple Choice

What is most likely to happen if Canada increases its budget deficit?

• A) Private saving will decrease and so shift the supply of loanable funds left.
• B) Investment will decrease and so shift the demand for loanable funds left.
• C) Public saving will decrease and so shift the supply of loanable funds left.
• D) Private saving will increase and so shift the supply of loanable funds to the right.

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Definitions:

Distortionary Tax

A tax that causes people to alter their behavior and make different economic decisions than they would in a free market, potentially leading to inefficiency.

Efficiency

The extent to which resources are utilized optimally to achieve desired outcomes with minimum waste or effort.

Second Best

A concept in economics that suggests if all optimal conditions cannot be satisfied, the second-best option should be pursued.

Distortionary Tax

Taxes that cause people to alter their behavior in a way that distorts the allocation of resources from their most efficient uses.