When Analyzing the Effects of the Government Budget Deficit

question 41

Multiple Choice

When analyzing the effects of the government budget deficit

• A) no distinction must be made between an economy where full employment exists and one where substantial unemployment exists.
• B) it is important to examine the effects of the reported capital budget and the reported operating budget separately.
• C) there should be a comparison of the effect of the deficit to the effects of higher taxes needed to eliminate it.
• D) the baseline budget should be used since it is the most accurate.

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Definitions:

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable due to market failure or interventions.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price, income, or other factors.

Demand

The desire to purchase goods and services backed by the ability and willingness to pay a price.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in one of its determinants, such as the price.