Assume that a government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to:
A) remain balanced.
B) be in deficit.
C) be in surplus.
D) be in either deficit or surplus, depending on the severity of the recession.

Question

Quizplus · Accepted Answer

During a recession, there is a decrease in economic activity and a corresponding decrease in tax revenues. With no change in spending laws, the government will continue to spend at the same level, but with lower revenue, the budget will move from balanced to a deficit.

Assume That a Government Has a Balanced Budget When the Economy