The government budget deficit tends to decrease during the expansion phase of a business cycle because tax revenues_________ and government transfer payments_________ .

Question

Quizplus · Accepted Answer

During the expansion phase of a business cycle, the economy grows, leading to higher incomes and profits, which results in a increased tax revenues for the government. Moreover, the strong economy enables people to find jobs, reducing the number of individuals eligible for government transfer payments such as unemployment benefits, which decreases government expenditure. Hence, the government budget deficit tends to decrease during the expansion phase of a business cycle.

The Government Budget Deficit Tends to Decrease During the Expansion