Quick question (1 Viewer)

[piethepker]

The following table shows selected economic data for a nation

Leakages = 600m injections = 700m (I summarised the table)

A. Economic activity is decreasing and the budget is in surplus
B. Economic activity is increasing and the budget is in surplus
C. Economic activity is increasing and the budget is in deficit
D. Economic activity is decreasing and the budget is in deficit.

The answers B, I thought it was C. I don't understand why its B.

Could someone explain why its B?

Cheers

 

[turnerloos]

Injections is greater than leakages, so economic activity is increasing. For the budget part of the answer, u look at government spending and taxation. Since the answer is B, im assuming the table would've shown Taxation > Government spending. Hence the answer is B.

 

[Ekman]

I guess this comes down to what specific term we are looking at. In the short term, the budget would go into a deficit, as there is more spending then taxing, hence less money in the budget. However, in the long term, the economic growth increases as there is more money stimulating it, causing more taxation revenue from the increased progressive taxes (This could be linked to unemployment rates + everything to the economic growth chapter), hence the budget moves to a surplus.

Im not entirely sure on what the question is asking, so I cant really explain why the answer is B rather than C

 

[Tsonga]

I'm guessing that even though injections > leakages in the actual table taxation > expenditure, which would result in economic growth and budget surplus

 

[piethepker]

Yep, on the table taxation was greater then government expenditure.

Thanks a lot!