Asked by makayla porter on May 01, 2024
Verified
Why would a budget approved by Congress incur a larger deficit if a recession occurred after the budget was passed?
A) Government purchases of goods and services will increase to accommodate the higher tax revenues.
B) The automatic stabilizers will push the budget toward a deficit.
C) The high-employment budget was not correctly estimated.
D) Political pressures will cause spending levels to be higher than budgeteD.
Budget Deficit
A financial situation where a government's expenditures exceed its revenues within a specific period, leading to borrowing or depleting reserves.
Automatic Stabilizers
Economic policies and programs, like unemployment benefits, that automatically adjust to stabilize an economy during fluctuations.
Recession
A significant decline in economic activity spread across the economy, lasting more than a few months, usually visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
- Gain an insight into the significance and outcomes of automatic stabilizers in economic systems, focusing on their merits and modes of action amid economic changes.
- Comprehend the correlation between actions in fiscal policy, such as reductions in taxes or increases in government expenditure, and their anticipated and unanticipated economic effects.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
B
Explanation :
A recession typically leads to lower tax revenues and higher government spending on social programs such as unemployment benefits. This increase in government spending and decrease in tax revenue would cause the budget to move toward a deficit, even if it was originally balanced or projected to have a surplus. This is due to automatic stabilizers in the economy that automatically increase government spending and decrease revenue during tough economic times.
Learning Objectives
- Gain an insight into the significance and outcomes of automatic stabilizers in economic systems, focusing on their merits and modes of action amid economic changes.
- Comprehend the correlation between actions in fiscal policy, such as reductions in taxes or increases in government expenditure, and their anticipated and unanticipated economic effects.