The reason why the budget deficit decreases during economic expansions is:

Question

Quizplus · Accepted Answer

During economic expansions, there is higher economic activity and therefore higher taxable income for individuals and corporations. This leads to higher tax revenues for the government, which helps to decrease the budget deficit. While welfare payments may also increase during economic expansions, the increase in tax revenues tends to have a greater impact on the budget deficit. Option A is incorrect because lower tax revenues would actually increase the budget deficit, and option B is only partially correct as it may contribute to an increase in the deficit, but not a decrease.

The Reason Why the Budget Deficit Decreases During Economic Expansions