If There Is Initially a Federal Budget Deficit, and Taxes

question 114

Multiple Choice

If there is initially a federal budget deficit, and taxes fall while transfer payments rise:

• A)there is an indeterminate effect on both AD and the budget deficit.
• B)AD increases and the budget deficit increases.
• C)AD increases and the budget deficit decreases.
• D)AD decreases and the budget deficit increases.
• E)AD decreases and the budget deficit decreases.

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Definitions:

Quantity Supplied

The cumulative volume of a specific good or service that suppliers are enthusiastic and able to sell at a given price within a set timeframe.

Price Floor

A government- or authority-set minimum price for certain goods or services, aimed at preventing prices from falling below a certain level.

Black Markets

Illegal trading of goods and services that occurs outside the official channels sanctioned by authorities.

Price Ceilings

An imposed limit on the price charged for a product or service, often set by government regulation to protect consumers from excessively high prices.