Question

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:a. a declining budget deficit.
b. a declining budget surplus.
c. a balanced budget.
d. an increasing budget deficit.
e. an increasing national debt.

Answer 1

Answer:

The correct answer is (A)

Explanation:

Governments usually apply various fiscal policies to decrease the budget deficit, and tax is one of them. Tax is applied to improve government revenue and to decrease the gap between revenues and expenses. The implementation of taxes decreases the budget deficit but at the same time, it leads toward inflation in long-run. A change in tax rate can improve deficit and gross domestic product.