4
AssignmentMultiple Choice

Fiscal Policy: Spending

Question 4 • Personal Finance - EL3403

What does it mean to measure a government's deficit "relative to the size of the economy"?

Answer
A
to compare the size of the deficit to productivity
B
to compare the size of the deficit to the unemployment rate
C
to measure the deficit as a percentage of the economy or GDP
D
to measure the deficit as a percentage of tax revenues

Explanation

Measuring a government's deficit relative to the size of the economy means comparing the deficit with the country’s gross domestic product (GDP). This is usually expressed as a percentage: deficit ÷ GDP × 100. So the correct choice is measuring the deficit as a percentage of the economy or GDP.

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