If the federal government were required to balance its budget annually

Question

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If the federal government were required to balance its budget annually, a recession would lead to either higher taxes or reduced spending in order to maintain the balanced budget. This would limit the ability of the government to use Keynesian aggregate demand policies in times of economic downturns. In contrast, during economic upturns, the government could reduce taxes or increase spending to maintain the balanced budget. Therefore, the federal budget would not act as an automatic stabilizer.

If the Federal Government Were Required to Balance Its Budget