Assume the Economy Is Closed and That It Is Operating

question 3

Multiple Choice

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

• A) The interest rate will decrease, leading to an increase in investment and capital formation.
• B) Demand and supply of credit will increase.
• C) A reduction in the growth of productivity, and a reduction in society's standard of living will occur.
• D) The increased amount of public goods will crowd out privately produced goods.

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Definitions:

Redistributing Income

The process of reallocating wealth and income across a society, typically through taxation and government programs, to reduce economic inequality.

Show of Generosity

A display or act where someone gives something or offers help to others without expecting anything in return.

Monetary Profit

Financial gain achieved when the revenue generated from business activities exceeds the expenses, costs, and taxes involved in sustaining the operation.

Adequate Standard

A benchmark or level of quality deemed acceptable or sufficient for its intended purpose, often used in contexts related to living conditions, performance, or regulatory compliance.