the choices for each drop down is increase or decrease Pleas

the choices for each drop down is increase or decrease

Please complete the following statements regarding the United States government\'s budget deficit. Suppose the government reduced tax rates while also increasing government spending, raising the budget deficit to 9% of GDP, while nominal GDP is rising at 6% per year. If this policy continues... The budget deficit will... Future tax rates will likely... Future government spending will likely...

Solution

Gross domestic product (GDP) is the money value of commodities produced within the boundary of an economy in a specified time period. Increase in GDP will mean increase in supply of commodities in the economy. It is growing at 6% per year.

Now government has reduced tax rate. It will give more money to the people of the economy as after tax earning ( known as disposable income). It will increase consumption demand of the economy. At the same time government has increased its spending. Remember tax is the source of revenue. Due to reduction in tax revenue is falling but expenditure is rising. So budget will run with deficit. If it is 9% of GDP then with the rise in GDP by 6% this deficit will also rise.

Answer: The budget deficit will increase.

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If the policy continues then government has to increase its revenue to control it, So tax must rise in future.

Answer: Future tax rate will likely to increase.

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If defecit is very large which cannot be fulfilled by raising tax, then government has to reduce its expenditure.

Answer: Future government spendings will likely to decrease.