If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement
A) contractionary ﬁscal policy.
B) no change in ﬁscal policy.
C) expansionary ﬁscal policy.
D) countercyclical ﬁscal policy.

Question

Quizplus · Accepted Answer

If there is a constitutional requirement to maintain a balanced budget, the government cannot engage in deficit spending. During a recession, tax revenues decline, which would result in a budget deficit if the government were to continue spending at the same level. Therefore, the government would have to implement contractionary fiscal policy, such as reducing government spending or increasing taxes, to balance the budget.

If There Is a Constitutional Requirement to Maintain a Balanced