Consider the government's budget deficit function.With an unchanged fiscal policy by government,an increase in GDP tends to ________ net tax revenues and thus ________ the budget deficit.

Question

Quizplus · Accepted Answer

An increase in GDP leads to an increase in income, which in turn raises the amount of tax revenue collected by the government. Therefore, an increase in GDP tends to raise net tax revenues, which will lower the budget deficit if government spending remains unchanged. Thus, the only option that reflects this is answer choice B, where an increase in GDP raises net tax revenues and therefore lowers the budget deficit.

Consider the Government's Budget Deficit Function