Why is the government budget constraint different between the short run and the long run?
What will be an ideal response?
In the short run, the government budget constraint consists of tax revenues and borrowing. However, a government cannot borrow indefinitely so that, in the long run, its budget constant consists of only tax revenues.
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For which of the following reasons is VAT considered a very important revenue generator for a government?
a. It is regressive in nature b. It targets only individuals in the high income class c. It cannot be avoided by individuals d. It boosts a country's export e. It lowers a country's import
Which of the following statements is true?
A. International capital-flow shocks have domestic effects under fixed exchange rates but not under floating exchange rates. B. A domestic monetary shock is less disruptive with floating exchange rates. C. With floating exchange rates, the transmission of business cycles through foreign trade and repercussion is less than with fixed exchange rates. D. If foreign capital is highly responsive to changes in interest rates, then domestic spending shocks are less disruptive with fixed exchange rates.