Suppose That the Economy Is in a Recession as a Result

question 126

Essay

Suppose that the economy is in a recession as a result of a fall in investment spending and real GDP is below potential GDP.
(A)Illustrate this on an aggregate demand inflation diagram.
(B)When real GDP falls,what happens to tax revenue,government spending,and the budget balance?
(C)If a balanced budget amendment were in place,what would have to happen to government spending and/or taxes? Illustrate on the diagram.
(D)It is wise to allow the government to run a deficit during a recession and a surplus during an expansion.Please answer true or false and explain.

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Definitions:

Prior Service Cost

This is the cost of retroactive benefits granted to employees in a defined benefit plan amendment, to be recognized over future periods.

Retroactive Benefits

Retroactive benefits refer to payments or compensations provided for a period before the benefits were approved or a claim was settled.

Actuarial Present Value

Actuarial Present Value is the calculation of the current value of future cash flows or payments, taking into account factors such as mortality rates and interest.

Accumulated Benefit Obligation

The present value of future retirement benefits earned up to a certain point in time, under a defined benefit pension plan.