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Chapter 30: Q.41 (page 742)

In a booming economy, is the federal government more likely to run surpluses or deficits? What are the various factors at play?

Short Answer

Expert verified

The federal government would run a surplus amid a growing economy.

Step by step solution

01

Definition of a booming economy.

A trade surplus is shown by solid growth in major economic indices such like GDP throughout time.

02

Explanation of solution.

In a booming economy, the federal government is capable of going a surplus. The automatic stabilisers will modify the taxation and spending levels. Due to greater employment and income, the government will be able to receive more tax revenue, and spending will naturally fall.

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Most popular questions from this chapter

What is the standardized employment budget?

Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Explain your answer. Is it possible for a nation to run budget surpluses and still have its debt/GDP ratio rise? Explain your answer.

What is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level?

Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not.

Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy is producing more than potential GDP.
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