First, define and explain the cyclically adjusted deficit. Second, explain what effect a recession caused, for example, by a reduction in consumer confidence will have on the size of the cyclically adjusted deficit
What will be an ideal response?
The cyclically adjusted deficit is the deficit that would occur if the economy were operating at the natural level of output. In terms of notation, it would be represented as G - T0 - tYN where T0 is autonomous taxes, YN is the natural level of output, and t is the average income tax rate. Deviations in output from YN will not cause changes in the cyclically adjusted deficit. So, a consumption-led recession will have no effect on this particular measure of the budget.
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If the nominal interest rate is above its equilibrium value, then
A) the demand curve for money shifts rightward and the interest rate rises. B) the demand curve for money shifts leftward and the interest rate falls. C) people sell financial assets and the interest rate falls. D) the supply curve of money shifts leftward and the interest rate rises. E) people buy financial assets and the interest rate falls.
Altogether, total health care spending per person in the United States is
A) about $3,600. B) over $8,000. C) roughly $26,000. D) about $50,000.