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Teacher professional development and classroom resources across the curriculum
To show that deficits can be helpful or harmful, depending on the circumstances.
Suppose that the president faces an economy plagued by stagflation. Output is predicted to drop steadily over the next two quarters. Unemployment is at record levels. If there is a deficit, and the president, under these circumstances, endeavors to balance the budget, which of the following will MOST LIKELY result?
Inflation may be relieved somewhat, but unemployment will be seriously aggravated. During a recession, balancing the budget will mean cutting spending and/or raising taxes, both of which will have negative effects on GNP and employment levels.NEXT QUESTION
A budgetary policy which states that the government’s budget should be set to promote a socially optimal combination of unemployment and inflation is known as:
functional finance.NEXT QUESTION
Suppose that the actual federal budget shows a deficit. But the full-employment budget, by contrast, shows a surplus. As an economic adviser who agrees with the thinking of most 1980s economists, you would MOST LIKELY conclude from this comparison that:
current fiscal policy is probably doing a fair job of stabilizing the economy.NEXT QUESTION
Again using the circumstances in the previous question, as an economic adviser you would probably attribute the deficit shown in the actual budget to:
Following World War II, Americans had a great deal of money to spend for the first time in many years. However, there were few commodities—even necessities—available for purchase. During this period, many economists feel that severe unemployment and even a recurrence of the Depression might have resulted except for the fact that:
the government borrowed heavily to finance the war debt.NEXT QUESTION
True or false: A counter-cyclical policy calls for budget surpluses in bad times to provide a strong reserve, and budget deficits in good times to keep things moving.
False. Just the opposite is true.RESTART QUIZ