There is an inverse relationship between the budget deficit and real GDP because
A)of adjustments in inflation.
B)of the inverse relationship between interest payments on the debt and real GDP.
C)as real GDP increases, tax revenue increases and transfer payments decline.
D)as real GDP declines, taxes increase and transfer programs decline.
E)as real GDP increases, taxes decline and spending on transfer programs increases.

Question

Quizplus · Accepted Answer

As real GDP increases and the economy grows, more people are employed and businesses operate at higher levels, generating more tax revenue for the government. At the same time, when the economy is growing, fewer people require assistance such as unemployment benefits, which reduces transfer payments. This combination of increased revenue and decreased spending on transfer programs helps to decrease the budget deficit. On the other hand, when the economy is in decline, tax revenue declines and transfer programs often need to be expanded to support those who are struggling, leading to an increase in the budget deficit.

There Is an Inverse Relationship Between the Budget Deficit and Real