Suppose Y=400 and the government's net tax rate is 10 percent. If we are told that the government has a budget surplus, then government purchases must be
A)greater than 30.
B)greater than 40.
C)less than 40.
D)less than 30.
E)-- not enough information to know.

Question

Quizplus · Accepted Answer

A government surplus occurs when government revenues exceed its expenditures. Given that Y = 400 and the net tax rate is 10%, the government collects 0.1(400) = 40 in taxes. In order to have a surplus, government purchases must be less than 40, as government revenues (40) must be greater than government expenditures (purchases). Therefore, the correct answer is (C) less than 40.

Suppose Y=400 and the Government's Net Tax Rate Is 10