The government should not attempt to balance the budget if
A)the economy is in a recessionary gap.
B)actual GDP is below full-employment GDP.
C)unemployment is rising.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If the economy is in a recessionary gap or actual GDP is below full-employment GDP or unemployment is rising, attempting to balance the budget would worsen the economic situation. This is because balancing the budget typically involves reducing government spending and/or increasing taxes, which would reduce aggregate demand and potentially lead to greater unemployment and less economic output. Therefore, in these circumstances, the government should prioritize using fiscal policy to stimulate the economy, even if it means running a temporary budget deficit.

The Government Should Not Attempt to Balance the Budget If