Differenciate between fiscal deficit & revenue deficit
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Assume that the economy is at full employment and is experiencing rapid inflation. Which of the following combinations of monetary and fiscal policies would reduce inflation most, assuming the dollar values for both policy changes are the same amount?
A. Monetary Policy - Buy government securities; Fiscal Policy - Increase the federal budget deficit
B. Monetary Policy - Buy government securities; Fiscal Policy - Decrease the federal budget deficit
C. Monetary Policy - Sell government securities; Fiscal Policy - Increase the federal budget deficit
D. Monetary Policy - Sell government securities; Fiscal Policy - Decrease the federal budget deficit
One of the concerns about government running an increasing fiscal deficit (e.g., by increasing spending) is that it exposes the economy to a rising current account deficit â the âtwin deficitâ story. Explain.
The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:
A. Budget surplus.
B. Trade deficit.
C. Trade surplus.
D. Budget deficit.