What determines the state of the government's budget?
A)The level of its spending.
B)Its tax rates.
C)Its tax rates and the exchange rate.
D)Both the level of GDP in the economy as well as tax rates and its own spending.
E)Both the level of GDP in the economy as well as tax rates and the exchange rate.

Question

Quizplus · Accepted Answer

The state of government's budget is determined by both the level of GDP in the economy, as it determines the government's revenue through taxes, and the combination of tax rates and the government's own spending, which determine the government's expenditures. Therefore, option D, which includes both GDP, tax rates, and government spending, is the best choice. The exchange rate, while it can impact the economy, does not directly determine the state of the government's budget.

What Determines the State of the Government's Budget