Suppose the Federal Budget Is Balanced When GDP Is at Potential

question 97

Multiple Choice

Suppose 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:

Residual Standard Deviation

A measure of the amount of variation in a set of observed values that is not explained by a statistical model, representing the standard deviation of the differences between predicted and observed values.

Regression Model

A mathematical representation used to estimate the relationship between a dependent variable and one or more independent variables.

Normally Distributed Residuals

Residuals (the differences between observed and predicted values) that are distributed according to a normal distribution, indicating a good fit for a linear model.

Normal Probability Plot

A graphical technique used to determine if a data set approximates a normal distribution, by plotting observed values against theoretically expected values in a normal distribution.