Increases in the Budget Deficit Are Believed to Cause Reductions

question 36

Essay

Increases in the budget deficit are believed to cause reductions in investment.Based on your understanding of the IS-LM model,will a fiscal policy action that causes a reduction in the budget deficit cause an increase in investment? Explain.

---

Definitions:

Utilitarian Theory

An ethical theory that suggests the best action is the one that maximizes utility, typically defined as that which produces the greatest well-being of the greatest number of people.

Predict Outcomes

The process of forecasting the probable results or consequences of an action or event based on current data or trends.

Self-interest

Acting based on one’s own benefit or advantage, often disregarding others.

Utilitarian Theory

A normative ethical theory that proposes actions are right if they benefit the majority, aiming to maximize happiness and reduce suffering.