Although running a budget deficit during a recession should not be a source of concern, running a budget deficit when there is no recession is a bad policy due to:

Question

Quizplus · Accepted Answer

Running a budget deficit when there is no recession can lead to crowding out. This is because when the government borrows money to finance its spending, it increases the demand for loanable funds, leading to an increase in interest rates. This increase in interest rates may discourage private investment, leading to a reduction in aggregate demand and potentially slowing economic growth.

Although Running a Budget Deficit During a Recession Should Not