High fiscal deficit is affecting government ability to speed

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Reference no: EM131107699

A recent report on GDP growth rates showed that the GDP of Dorada, a developed economy, has declined this year. Emily George and her friend Tabitha, Jude, both students of economics, are discussing the possible reasons for the decline in the growth rate. Emily feels that the government deficit has reached an unsustainable levels, as a result of which interest rates now are extremely high. this has reduced government expenditure in recent times, leading to a decline in GDP. Tabitha however disagrees. According to her,teh fall in GDP must imply a fall in consumer spending as household consumption accounts for the largest share in Dorada's GDP. Which of the following if true, strengthen Emily's claim that the high fiscal deficit is affecting the government's ability to speed? A.The central government's grant-in -aid to the local government increased by 7%. B. The president's economic advisory council is of the opinion that the fiscal deficit should not exceed 3% of the country's GDP. C. A sizeable portion of the tax revenue generated in Dorada is being used to make interest payments on sovereign debt. D. The government of Dorada scaled up its defense expenditure by more than 50% in the last two years. E. Given that the government of Dorada has never defaulted on sovereign debt, it enjoys very high credit ratings.

Reference no: EM131107699

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