The figure below shows the budget deficit function for a country. a. Explain why the budget deficit

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The figure below shows the budget deficit function for a country.

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a. Explain why the budget deficit function is downward sloping.

b. If the government increases its level of purchases $(G)$, what happens to the budget deficit at any level of real GDP? Show this in the diagram.

c. If the government increases the net tax rate, what happens to the deficit at any level of real GDP? Show this in the diagram.

d. Explain why a rise in the actual budget deficit does not necessarily reflect a change in fiscal policy.

e. How would a fiscal expansion appear in the diagram? A fiscal contraction?

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Macroeconomics

ISBN: 9780133910445

15th Edition

Authors: Christopher T S Ragan

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Question Posted: Mar 14, 2024 12:00 PM

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The figure below shows the budget deficit function for a country. a. Explain why the budget deficit

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Deficit Surplus 0 Real GDP (G+iD-T)

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Macroeconomics

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