With the expenditures programs and the tax system shown in the diagram,
A) the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K.
B) the public budget will be a destabilizing force at all levels of GDP.
C) deﬁcits will occur at income levels below K, and surpluses above K.
D) deﬁcits will occur at income levels below H, and surpluses above H.

Question

With the expenditures programs and the tax system shown in the diagram,
A) the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K. 
B) the public budget will be a destabilizing force at all levels of GDP. 
C) deﬁcits will occur at income levels below K, and surpluses above K. 
D) deﬁcits will occur at income levels below H, and surpluses above H.

Quizplus · Accepted Answer

The diagram shows that at GDP level K, the government expenditures line intersects with the tax revenue line, indicating a balanced budget. At GDP levels below K, the tax revenue received is greater than the government expenditures, resulting in a surplus. At GDP levels above K, the government expenditures exceed the tax revenue received, resulting in a deficit. Therefore, deficits will occur at income levels below K, and surpluses above K.

With the Expenditures Programs and the Tax System Shown in the Diagram