A critical assumption
a. makes an economic model a more concrete representation of reality
b. eliminates unnecessary details from an economic model
c. has an important impact on the conclusions of an economic model
d. is usually implicit in an economic model
e. increases the level of abstraction of an economic model
C
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What is the difference between the federal budget deficit and the national debt?
a. The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. b. The budget deficit is the cumulative effect of all prior national debts. c. The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. d. This is a trick question because there is no difference between the budget deficit and the national debt.
The cyclically adjusted deficit as a percentage of GDP is 2 percent in year 1. This deficit becomes 1 percent of GDP in year 2. It can be concluded from year 1 to year 2 that:
A. fiscal policy was expansionary. B. the federal government is increasing spending. C. the federal government is decreasing taxes. D. fiscal policy was contractionary.