Suppose the government reduces its budget deficit at the same time that energy prices rise sharply.Which of the following is most likely to happen?

Question

Quizplus · Accepted Answer

Reducing the government's budget deficit typically involves decreasing government spending or increasing taxes, both of which can reduce aggregate demand. A sharp rise in energy prices increases production costs, leading to decreased supply. Both actions can lead to an economic contraction, thus reducing real GDP.

Suppose the Government Reduces Its Budget Deficit at the Same