If the economy is in a recessionary gap and the government attempts to balance the budget, the effect will be to

Question

Quizplus · Accepted Answer

If the government attempts to balance the budget during a recessionary gap, it means they will most likely reduce government spending and increase taxes. This will reduce aggregate demand and worsen the recession by decreasing consumption and investment. As a result, the output and employment level will likely decrease, ultimately prolonging the recession.

If the Economy Is in a Recessionary Gap and the Government