Assume the Economy Is Closed and That It Is Operating

question 3

Multiple Choice

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

• A) The interest rate will decrease, leading to an increase in investment and capital formation.
• B) Demand and supply of credit will increase.
• C) A reduction in the growth of productivity, and a reduction in society's standard of living will occur.
• D) The increased amount of public goods will crowd out privately produced goods.

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Definitions:

Plant and Equipment

Tangible long-term assets owned by a business, used in the production or supply of goods and services.

Goodwill

An intangible asset that arises when a business is acquired for more than its fair market value, reflecting factors like reputation, brand, and customer loyalty.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity and operational efficiency of the business.

Current Assets

Short-term assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, whichever is longer.