The diagram below shows the budget deficit function for a hypothetical economy.
FIGURE 32- 1
-Refer to Figure 32- 1. Initially, suppose that real GDP is $100 million and the budget deficit is $4 million, as shown by point A. If the government implements an expansionary fiscal policy by decreasing lump- sum taxes, then
A) the budget deficit function would become steeper.
B) the budget deficit function would become flatter.
C) the budget deficit function would shift up.
D) the budget deficit function would shift down.
E) the size of the budget deficit would decrease as we move from point A to point B.
Correct Answer:
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