The federal budget exhibited a $128.7 billion surplus in 2001 but moved to a deficit of $157.8 billion in 2002. Some argued the deficit was opened up because of the Bush 2001 tax cuts, but others argued that the deficit grew because of the recession
suffered in 2001. Evaluate the validity of the second argument.
What will be an ideal response?
Recessions increase the federal budget deficit because of automatic stabilizers in the economy. When GDP declines because of a recession, incomes and profits decline, causing tax revenues to decline. This will lower a budget surplus or increase a budget deficit. Falling GDP usually means rising unemployment, which increases government expenditures on unemployment insurance and other transfer programs. Increased government expenditures also lower a surplus or increase a deficit. Therefore, not all of the increase in the deficit was due to discretionary fiscal policy. Part of the increase in the deficit was a consequence of automatic stabilizers in the economy.
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Between 2013 and 2016, a country's nominal GDP grew by 18 percent and its inflation rate (based on the chain-weighted price index for GDP) was 11 percent. How fast did real GDP grow over this period?
What will be an ideal response?
Positive externalities lead to under supply in a market
Indicate whether the statement is true or false
Technology is:
A) knowledge that can be applied to the production of goods and services. B) generally unlimited in modern economies. C) a graphical illustration of the alternative combinations of goods and services an economy can produce. D) the resources the economy has available to produce goods and services.
The near-money components of M2 are:
A. equally liquid as the M1 components of M2. B. more liquid than the M1 components of M2. C. less liquid than the M1 components of M2. D. highly illiquid.