Trump’s Economic Agenda: Tax Cuts Exceed Spending Cuts

Good Job! - When outlays exceed receipts, a budget deficit exists. So when additional tax cuts exceed spending cuts, the budget deficit increases.

The price elasticity of demand for goods sold at Walmart is 0.8, so demand is inelastic.

Well Done! - Government debt is the amount that the government has borrowed—the sum of past budget deficits minus the sum of past budget surpluses.

When the government has a deficit, government debt increases.

That's Right! - The real interest rate is determined in the loanable funds markets.

The government borrows in the loanable funds market when it has a budget deficit so an increase in the budget deficit increases the demand for loanable funds. When the demand for loanable funds increases, the real interest rate rises.

Correct! - The crowding-out effect is the tendency for a government budget deficit to raise the real interest rate and decrease investment.

The decrease in investment slows economic growth.