Suppose That at the Start of Fiscal Year 2010 the Government

question 79

Multiple Choice

Suppose that at the start of fiscal year 2010 the government had a debt of $6250 billion. Suppose that during the same fiscal year real GDP grew by about 4 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

• A)about $122 billion
• B)about $184 billion
• C)about $245 billion
• D)about $375 billion

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Definitions:

Depreciation

The accounting method of allocating the cost of a tangible asset over its useful life.

Sales Commissions

Payments made to sales employees or agents based on the sales volume they achieve.

Factory Overhead

Factory overhead encompasses all indirect costs associated with the manufacturing process, including utilities, maintenance, and management salaries.

Amortization

The periodic transfer of the cost of an intangible asset to expense or of a bond discount to interest expense.