The federal budget went $161 billion in fiscal year 2007 to $1 trillion in the next two to three years. What are the main factors that contributed to this increase?
What will be an ideal response?
Three main factors contributed to this increase:The recession of 2007–2009 was the worst since the Great Depression. As such, there was a significant decrease in tax receipts and a significant increase in transfer payments related to automatic stabilizers. Without any discretionary action by the government, this economic downturn would have led to a substantial deficit.As a result of the subprime mortgage issues and the ensuing financial crisis, the federal government responded with the $700 billion Troubled Asset Relief Program (TARP). This spending contributed significantly to the expanding deficit at the end of the 2000s.In addition, the Bush and Obama administrations both enacted stimulus packages designed to increase or at least limit the decline in aggregate demand. These measures helped the recession from worsening but at the same time significantly increased the budget deficit.
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Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. expansionary; higher; potential C. recessionary; higher; potential D. recessionary; lower; lower
For any given price, the more elastic the demand for a product is, the greater will be the consumer surplus
a. True b. False
Comparative advantage is the rule that ordinarily prevents a nation from independently producing all of the goods it requires
a. True b. False Indicate whether the statement is true or false
Assume the market for tennis balls is perfectly competitive. When one tennis ball producer exits the market,
a. the price of tennis balls increases. b. the price of tennis balls decreases. c. the price of tennis balls does not change. d. there is no longer a market for tennis balls.