What Will Be the Impact on AD and the Budget

question 64

Multiple Choice

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and government purchases and taxes both rise?

• A)AD increases and the budget deficit decreases.
• B)There is an indeterminate effect on both AD and the budget deficit.
• C)AD decreases and the budget deficit increases.
• D)AD increases and the budget deficit increases.

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Definitions:

Trade Balance

The value of a nation’s exports minus the value of its imports; also called net exports.

Capital Flight

The large-scale exodus of financial assets and capital from a country due to economic instability or unfavorable policies, leading to a decrease in investment and economic growth.

Real Exchange Rate

The rate at which the goods and services of one country can be exchanged for those of another, adjusted for inflation.

National Saving

The total amount of savings generated within a country, typically calculated as the sum of private and public savings after accounting for investments and budget deficits.