How does China's fiscal stimulus change the government budget balance, government debt, and real GDP?
China's fiscal stimulus would ___________ the budget balance, ___________ the government debt, and ___________ the real GDP.
Wrong! - Subsidies and transfer payments are government outlays. If subsidies and transfer payments increase, how do government outlays change? If the government borrowed money by selling bonds, how will government debt change? How does the change in consumption expenditure change government outlays?
Good Job! - A fiscal stimulus is used when real GDP is less than potential GDP. As subsidies and transfer payments increase, the budget balance which is defined as receipts minus outlays would decrease. Selling bonds would increase government debt. Providing financial support to people and subsidizing consumer items will increase consumption expenditure. Aggregate demand will increase and increase real GDP.
