The economy is in a recession, the recessionary gap is large, and there is a budget deficit.The budget deficit is _______.Automatic fiscal policy is _______the output gap.

Question

Quizplus · Accepted Answer

Automatic fiscal policy, through mechanisms like unemployment benefits and lower tax revenues due to decreased incomes, acts counter-cyclically to help decrease the output gap during a recession. The budget deficit in a recession is at least partly composed of a cyclical deficit, which arises from the economic downturn itself, rather than from structural budgetary decisions.

The Economy Is in a Recession, the Recessionary Gap Is