Suppose That the Economy Is Experiencing Both an Inflationary Gap

question 12

Multiple Choice

Suppose that the economy is experiencing both an inflationary gap and a budget surplus.Which of the following is true?

• A)Attempts to balance the budget would be pro-cyclical.
• B)Attempts to balance the budget would be counter-cyclical.
• C)Attempts to balance the budget would eliminate or reduce the size of the gap.
• D)Reducing the size of the gap would reduce the surplus.

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Definitions:

Net Advantage To Leasing

The total financial benefit that a company gains from leasing an asset rather than purchasing it, taking into account all costs and savings associated with the lease.

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life, assuming a constant rate of depreciation.

Marginal Tax Rates

The tax rate applicable to the last dollar of an individual's or entity's taxable income.

Pre-Tax Loan Rate

The interest rate on a loan calculated before taxes have been deducted.