« previous next »

Author Question: First, define and explain the cyclically adjusted deficit. Second, explain what effect a recession ... (Read 54 times)

penza

  • Hero Member
  • *****
  • Posts: 1,022
on: Jun 30, 2018
First, define and explain the cyclically adjusted deficit. Second, explain what effect a recession caused, for example, by a reduction in consumer confidence will have on the size of the cyclically adjusted deficit.
 
  What will be an ideal response?

Question 2

Explain what is meant by automatic stabilizers and how they work to minimize fluctuations in economic activity.
 
  What will be an ideal response?


kkenney

  • Sr. Member
  • ****
  • Posts: 352
Reply #1 on: Jun 30, 2018
Answer to Question 1

The cyclically adjusted deficit is the deficit that would occur if the economy were operating at the natural level of output. In terms of notation, it would be represented as G - T0 - tYN where T0 is autonomous taxes, YN is the natural level of output, and t is the average income tax rate. Deviations in output from YN will not cause changes in the cyclically adjusted deficit. So, a consumption-led recession will have no effect on this particular measure of the budget.

Answer to Question 2

Automatic stabilizers refer to the effect that changes in economic activity have on the size of the actual deficit. The fact that T will automatically fall as Y falls, will dampen the effects of any negative shock on the economy.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

Though the United States has largely rejected the metric system, it is used for currency, as in 100 pennies = 1 dollar. Previously, the British currency system was used, with measurements such as 12 pence to the shilling, and 20 shillings to the pound.

Did you know?

Although not all of the following muscle groups are commonly used, intramuscular injections may be given into the abdominals, biceps, calves, deltoids, gluteals, laterals, pectorals, quadriceps, trapezoids, and triceps.

Did you know?

Though Candida and Aspergillus species are the most common fungal pathogens causing invasive fungal disease in the immunocompromised, infections due to previously uncommon hyaline and dematiaceous filamentous fungi are occurring more often today. Rare fungal infections, once accurately diagnosed, may require surgical debridement, immunotherapy, and newer antifungals used singly or in combination with older antifungals, on a case-by-case basis.

Did you know?

It is believed that the Incas used anesthesia. Evidence supports the theory that shamans chewed cocoa leaves and drilled holes into the heads of patients (letting evil spirits escape), spitting into the wounds they made. The mixture of cocaine, saliva, and resin numbed the site enough to allow hours of drilling.

Did you know?

Women are 50% to 75% more likely than men to experience an adverse drug reaction.

The Role of Microfilaments in Cell Movement-Showing Cause and Effect in Biology 2 The Role of Microfilaments in Cell Movement-Showing Cause and Effect in Biology 2
Effect of pH on oxygen binding to hemoglobin Effect of pH on oxygen binding to hemoglobin
Alzheimer’s Drugs Work by Intensifying the Effect of Acetylcholine at the Receptor Alzheimer’s Drugs Work by Intensifying the Effect of Acetylcholine at the Receptor
First-pass effect. First-pass effect.
Hall-effect switches use metallic shutters to shunt magnetic lines of force away from a silicon ... Hall-effect switches use metallic shutters to shunt magnetic lines of force away from a silicon ...
The effect of disruptive selection on bristle number in Drosophila The effect of disruptive selection on bristle number in Drosophila
Video: Digestion Animation

For a complete list of videos, visit our video library