The Official Measure of the Deficit

question 55

Multiple Choice

The official measure of the deficit

• A)always underestimates the correct measure of the deficit when inflation is positive.
• B)differs from the correct measure by the inflation rate times taxes.
• C)depends on the nominal interest rate.
• D)depends on the real interest rate.
• E) none of the above

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Definitions:

Substitution Effect

The economic understanding that as prices rise or income decreases, consumers replace more expensive items with less costly alternatives.

Wage Increase

A rise in the rate of pay employees receive for their work.

Leisure

Free time not taken up by work, during which individuals can engage in activities of their choice for relaxation or pleasure.

Income

Income earned from employment or investments, typically on a consistent basis.