If a government has a budget deficit, it must Group of answer choices: decrease taxes. decrease...

If a government has a budget deficit, it must

Group of answer choices:

decrease taxes.

decrease its expenditures.

increase taxes.

borrow in the loanable funds market.

Solutions

Expert Solution

- If a government has a budget deficit, it must never decrease the tax rates because the taxes are form of earning to the government and it would not decrease its earnings at the time of deficit when it is already running out of profits because of its exceeding expenses. Therefore, this is not the correct option.

Group of correct choices:

- As we know that a budget deficit occurs when the government spends more than what it has earned. So, when a government has a budget deficit, it will definitely focus on decreasing its expenditure in order to reduce its deficit.

- It would be the best option for the government to increase the taxes to cope up with the deficit. A budget deficit occurs when the government’s revenue is less than the amount it has spent. And, taxes are a source of income to the government so it can increase the taxes at the time of deficit.

- We know that the one who is running in a loss is the one who borrows. Here, if a government is facing a budget deficit, it would definitely borrow in the loanable funds market in order to reduce the deficit and to help the economy grow. It is when the government has a budget surplus, a situation in which it has the capacity to spend because of its greater profits, it becomes the lender in the loanable funds market.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

All else equal, an increase in taxes will cause Group of answer choices a.) a decrease...

All else equal, an increase in taxes will cause Group of answer choices a.) a decrease in National Income. b) a decrease in the government's budget surplus. c) An increase in disposable income. d) all of the above.

When the Government runs a budget deficit, it must sell Treasury bonds to finance that deficit....

When the Government runs a budget deficit, it must sell Treasury bonds to finance that deficit. To analyze the impact of increased government spending, assume the Treasury will be selling new 1-year Treasury bills. Use a supply and demand for bonds model to determine what is likely to happen to interest rates on 1-year bills. (Explain your graph)

Which is not a reason for a decrease in aggregate demand? Group of answer choices 1....

Which is not a reason for a decrease in aggregate demand? Group of answer choices 1. Decrease in taxes 2. Increase in taxes 3..Decrease in income 4. Increase in interest rates

1. When the government decrease the budget deficit, what happens to IS, LM and Aggregate Demand?...

1. When the government decrease the budget deficit, what happens to IS, LM and Aggregate Demand? 2. When the government increase the budget deficit, what happens to IS, LM and Aggregate Demand? 3. When Central Bank purchases bonds, what happens to IS, LM, and Aggregate Demand? Could someone help answering these questions?

How would a cut in government expenditures leading to a decrease in budget deficit (keeping all...

How would a cut in government expenditures leading to a decrease in budget deficit (keeping all the other factors constant) affect bond prices? Explain and show with the help of a well-labeled demand and supply diagram for bonds. Please also state the impact of this change in bond prices on interest rates.Immersive Reader

To reduce the budget deficit, the government creates new unit taxes that generate $3 billion in...

To reduce the budget deficit, the government creates new unit taxes that generate $3 billion in revenue. How will this affect total surplus (i.e., consumer surplus + producer surplus)? a. Total surplus will be unaffected b. Total surplus will fall by less than $3 billion c. Total surplus will fall by $3 billion d. Total surplus will fall by more than $3 billion

Effects of a government budget deficit

3. Effects of a government budget deficitConsider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.Screen Shot 2020-10-09 at 3.24.05 PM.pngGiven the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use...

Please include J-Curve in your answer. The government budget deficit and the trade deficit are often...

Please include J-Curve in your answer. The government budget deficit and the trade deficit are often called the "twin deficits." Explain why this name applies, and why it is not always accurate.

13. which of the following will increase demand for Coke? Group of answer choices a decrease...

13. which of the following will increase demand for Coke? Group of answer choices a decrease in the price of Coke. an increase in the price of Coke. an increase in the price of Pepsi. not sure which? 14. In a competitive market, equilibrium price will result in: Group of answer choices quantity supplied = quantity demanded quantity supplied > quantity demanded quantity supplied < quantity demanded I'm getting a little hungry right about now.

A federal budget deficit acts as an automatic stabilizer because: government tax revenues decrease during a...

A federal budget deficit acts as an automatic stabilizer because: government tax revenues decrease during a recession. unemployment benefit payments decrease during a recession. tax receipts decrease during expansionary periods. Medicare payments increase during expansionary periods.

Subjects