Assume That a Government Has a Balanced Budget When the Economy

question 20

Multiple Choice

Assume that a government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to:

• A) remain balanced.
• B) be in deficit.
• C) be in surplus.
• D) be in either deficit or surplus, depending on the severity of the recession.

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Definitions:

Direct Method

A cash flow statement preparation approach that reports major classes of gross cash receipts and payments.

Cost of Goods Sold

An expense recorded to reflect the cost directly associated with producing the goods sold by a company.

Comparative Balance Sheets

Comparative balance sheets present the financial position of a company at two different points in time, allowing for analysis of changes and trends.

Inventory

The sum of all products and materials possessed by a firm, intended for either reselling or manufacturing.