What is the cyclical deficit, and when is it appropriate to have such a deficit? Why?
What will be an ideal response?
The cyclical deficit is the portion of the budget deficit due to the changes in the business cycle when the economy is not at full employment. During a recession it might be appropriate to run a cyclical deficit. When national income is below full employment, tax receipts decrease and income transfers increase. In order to maintain a balanced budget during a recession, the government would have to increase taxes and/or decrease spending. Both of these policies would reduce national income by an even greater amount and make the recession worse.
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During the course of the twentieth century, the average workweek in the United States has gotten shorter and Americans have enjoyed greater amounts of leisure time. How has this development affected potential GDP and labor productivity?
Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50 . The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000
a. True b. False Indicate whether the statement is true or false
A managed floating exchange rate system is characterised by which of the following:
(a) The exchange rate varies with the market forces of supply and demand. (b) Some intervention by Central Banks is occasionally required. (c) Intervention by Central Banks usually occurs when the currency is either very strong or very weak. (d) All of the above.
The GDP gap is the difference between:
A. frictional unemployment and actual real GDP. B. unemployment rate and real GDP deflator. C. actual real GDP and full-employment real GDP . D. full-employment real GDP and real GDP deflator.