An increase in the federal budget deficit:
A)only occurs when there is a deficit in the balance of trade.
B)creates deflation.
C)decreases aggregate demand.
D)decreases the aggregate quantity demanded along a stationary aggregate demand curve.
E)raises the equilibrium level of output and employment.

Question

Quizplus · Accepted Answer

An increase in the federal budget deficit will increase government spending, which will raise aggregate demand and potentially increase output and employment levels in the economy. This is because the government will be injecting more money into the economy, creating a multiplier effect on overall spending.

An Increase in the Federal Budget Deficit