Under a cyclically balanced budget, a government should raise taxes when the economy is growing and reduce taxes when GDP is declining.

Question

Quizplus · Accepted Answer

A cyclically balanced budget means that the government adjusts its spending and taxation policies based on the state of the economy. When the economy is growing, the government should increase taxes to prevent inflation and reduce borrowing. On the other hand, when the GDP is declining, the government should reduce taxes to encourage spending and boost economic activity. This approach ensures that the government maintains a stable budget over the business cycle.

Under a Cyclically Balanced Budget, a Government Should Raise Taxes