What happens to deficits during expansions?
A) They increase, because tax revenues decline while spending programs increase.
B) They decrease, because tax revenues decline while spending programs decrease.
C) They increase, because personal income and corporate profits increase, boosting tax revenue.
D) They decrease, because personal income and corporate profits increase, boosting tax revenue.
E) They decrease during recessions and increase during expansions.

Question

Quizplus · Accepted Answer

During expansions, economic growth and increased economic activity tend to boost personal income and corporate profits, leading to an increase in tax revenue for the government. As a result, deficits tend to decrease during these periods of economic growth. Option A is incorrect because spending programs tend to decrease during economic expansions as the need for government assistance declines. Option B is incorrect because tax revenues tend to increase during expansions. Option C is partially correct but does not take into account the decrease in spending programs that typically occurs during expansions. Option E is incorrect because deficits tend to decrease during expansions.

What Happens to Deficits During Expansions