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 increasing its purchases of goods and services, then

Question

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 increasing its purchases of goods and services, then

Quizplus · Accepted Answer

When the government implements an expansionary fiscal policy by increasing its purchases of goods and services, it will lead to an increase in aggregate demand, which in turn will increase real GDP. As real GDP increases, the budget deficit function shifts up. Therefore, the correct answer is D.

The Diagram Below Shows the Budget Deficit Function for a Hypothetical