The budget deficit function is graphed with the budget deficit on the vertical axis and on the horizontal axis, and is .

Question

Quizplus · Accepted Answer

The budget deficit function is dependent on the level of real GDP, as higher GDP leads to higher tax revenue and lower government spending on programs like unemployment benefits. Therefore, the budget deficit function is downward sloping as higher GDP leads to a smaller deficit. The interest rate may have an impact on borrowing costs for the government and thus affect the deficit, but it is not the primary variable in the budget deficit function.

The Budget Deficit Function Is Graphed with the Budget Deficit