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Large federal budget deficits

Large federal budget deficits
a. can best be reduced by automatic stabilizers
b. make it difficult to use discretionary fiscal policy
c. in the mid to late 1980s were the result of a severe recession
d. still constitute only about 1 percent of GDP
e. have little to do with the growth of the federal debt

The lower tax rates enacted in the early 1980s were intended to
a. increase the supply of labor
b. increase the price level
c. increase unemployment benefits
d. reduce potential GDP
e. reduce the money supply

The Reagan experiment in supply-side economics resulted in all of the following except
a. growth in employment
b. a period of sustained economic growth
c. a reduction in the federal debt
d. reduced unemployment
e. an increase in deficits as a percentage of GDP

Solution Preview

Large federal budget deficits
a. can best be reduced by automatic stabilizers
b. make it difficult to use discretionary fiscal policy
c. in the mid to late 1980s were the result of a severe recession
d. still constitute only about 1 percent of GDP
e. have little to do with the growth of the federal debt

Federal budget deficit means G > T. The large government spending will increase the GDP through multiplier effect. Therefore,

the ...

Solution Summary

The lower tax rates are assessed.

$2.19