When analyzing the effects of the government budget deficit
A) no distinction must be made between an economy where full employment exists and one where substantial unemployment exists.
B) it is important to examine the effects of the reported capital budget and the reported operating budget separately.
C) there should be a comparison of the effect of the deficit to the effects of higher taxes needed to eliminate it.
D) the baseline budget should be used since it is the most accurate.

Question

Quizplus · Accepted Answer

It is important to compare the effects of the deficit to the effects of higher taxes needed to eliminate it in order to determine the most appropriate solution. Choice A is incorrect because the presence of unemployment can significantly affect the impact of the deficit. Choice B is incorrect because both the operating and capital budget should be examined together to determine the overall effect of the deficit. Choice D is incorrect because the baseline budget may not reflect current economic conditions and therefore may not be the most accurate.

When Analyzing the Effects of the Government Budget Deficit