Which of the following is true of an annually balanced federal budget?
A)Most economists agree that the federal government should balance its budget just as each household does.
B)Such a policy would require the government to increase its spending when tax receipts decrease.
C)Such a policy became popular between the 1930s and 1960s.
D)Such a policy guarantees that the economy is its potential level.
E)Such a policy could worsen a contractionary gap.

Question

Quizplus · Accepted Answer

An annually balanced federal budget could indeed worsen a contractionary gap because during economic downturns, reducing government spending or increasing taxes to balance the budget could further reduce aggregate demand, deepening the downturn.

Which of the Following Is True of an Annually Balanced