What does the “cyclically adjusted budget” measure and of what significance is this concept?
What will be an ideal response?
The cyclically adjusted budget refers to the budget deficit or surplus that would result with existing tax and spending programs if the economy were operating at full employment. In other words, tax revenues and government spending are estimated at the level that would result if full employment existed.
Some economists believe that the cyclically adjusted budgetary deficit or surplus is what should determine the expansionary or contraction nature of fiscal policy rather than the actual budgetary deficit or surplus. If the cyclically adjusted budget is not in deficit, then expansionary fiscal policy is not being followed according to this view, even if the actual budget is in deficit.
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An economic model is a simplified version of reality used to analyze real-world economic situations
Indicate whether the statement is true or false
The Solow model predicts that the standard of living in poorer nations will converge on that of richer nations through rapid capital formation that raises output per person
The introduction of technological change to the model ________ change this prediction because technology ________ assumed to be freely available to all countries. A) does, is B) does, is not C) does not, is not D) does not, is
In the short run, the monopolistic competitor is just like the perfect competitor in that
A) equilibrium is determined by setting price equal to marginal cost. B) either type of firm can earn economic profits, experience economic losses, or break even in the short run. C) each equates marginal revenue and marginal cost in order to maximize profits, with the result that price exceeds marginal revenue. D) new firms enter in the short run when firms are making profits.
Suppose a new contracting environment that requires clearing fewer legal hurdles is considered. This new contract will result in:
A. an increase in the marginal cost and a shorter optimal contract. B. a decrease in the marginal cost and a shorter optimal contract. C. a decrease in the marginal cost and a longer optimal contract. D. an increase in the marginal cost and a longer optimal contract.