Suppose an economy is running a government budget deficit Assume that C c0 c1 Y T Which one of the f...........

Economics- Phase (I & II) IS-LM

Suppose an economy is running a government budget deficit. Assume that C = c0 + c1(Y-T). Which one of the following will cause this deficit to become larger?

Expansionary monetary policy.

An increase in exports.

A decrease in equilibrium GDP.

A decrease in taxes.

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Explanation:

A government budget deficit means that T-G<0. Therefore, lower taxes will imply lower revenues for the government and a higher government budget deficit.