The government budget deficit is
a. the difference between government purchases and government revenues from bonds and taxes
b. caused by a lack of business sector investment
c. created when the government expenditures exceed net taxes
d. caused by leakages in the economy
e. is created by government injections
C
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Why is the multiplier for contractionary fiscal policy smaller in an open economy?
A) Contractionary fiscal policy reduces the deficit, which raises the interest rate, which raises the foreign exchange value of the dollar, which increases net exports. B) Contractionary fiscal policy increases the deficit, which raises the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports. C) Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which decreases net exports. D) Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports.
The change in import spending due to a change in domestic real income is called:
A) marginal propensity to save. B) marginal propensity to consume. C) marginal propensity to import. D) none of the above.