In the Long Run a Budget Deficit Is Likely to Cause

question 47

Multiple Choice

In the long run a budget deficit is likely to cause a decrease in GDP because:

• A) private and government savings will increase.
• B) domestic investment will decline, lowering future capital stock and hence future GDP.
• C) there will be an increase in international confidence and investment.
• D) inflation will decline while prices go up.

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Definitions:

Sales Value

Sales value refers to the total revenue generated from the sale of goods or services, before any deductions for costs or expenses.

Variable Production Costs

Costs that vary directly with the level of production, such as raw materials and direct labor.

Incremental Revenue

The additional revenue generated from a new business decision or activity.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales, such as rent or salaries.