Question

CBO expects higher long-term deficits The Congressional Budget Office (CBO) says the national debt is on an upward path and will hit 122 percent of GD f the govemment decided to slow the growth of debl by cutting transter payments and raising taxes by the same an Cutting transfer payments and raising taxes by the same amount- A. increases the budget deficit increases aggregate demand, and increases real GDP O B. decreases the budget defict, decreases aggregate demand, and has no influence on real GDP O C. decreases the budget deficit, decreases aggregate demand, and decreases real GDP O D. does not change the budget deficit The supply-side effect of an increase in taxesemployment and O A. decreases, increases oB. decreases, decreases ° C. does not change, does not change O D. increases, increases real GDP Click to select your answer Type here to search

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Answer 1

C) decreases the budget deficit, decreases aggregate demand, and decrease real GDP.

Budget deficit = Government expenditure - Government revenue

Cutting transfer payments means decrease in government spending.

Increase in taxes means increase in government revenue.

This means budget deficit decreases.

Increase in taxes decreases disposable income of consumer and thus decreases consumption and as a result, AD falls.

Leftward shift of AD decreases real GDP and price level.

B) Decreases; decreases