Suppose That the Federal Budget Is Balanced When GDP Is

question 50

Multiple Choice

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential:

• A)this will result in a budget deficit.
• B)the budget will remain balanced.
• C)transfer payments will decrease automatically.
• D)tax revenues will increase automatically.

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Definitions:

Spending Variance

The difference between the actual expenditure and the budgeted amount.

Machine-Hours

A measure used to allocate manufacturing overhead costs to products based on the number of hours machines are used in the production process.

Spending Variance

A measure of the difference between the budgeted amount of expenses and the actual amount spent.

Flexible Budget

A flexible budget tailored to adjust as activity levels or volumes change.