If the Canadian federal government adopted a formal balanced budget rule, during times that GDP was falling it would have to

Question

Quizplus · Accepted Answer

A balanced budget rule requires the government to match its spending with its revenue. During a GDP decline, revenues typically fall, so to maintain a balanced budget, the government would need to increase tax rates and/or decrease spending, which could further destabilize the economy by reducing aggregate demand.

If the Canadian Federal Government Adopted a Formal Balanced Budget