Which of the following is true of an annually balanced federal budget?
A) Most economists agree that the federal government should balance its budget just as each household does.
B) Such a policy would require the government to increase its spending when tax receipts decrease.
C) Such a policy became popular between the 1930s and 1960s.
D) Such a policy guarantees that an economy reaches its potential level.
E) Such a policy could worsen a contractionary gap.

Question

Quizplus · Accepted Answer

An annually balanced federal budget, where government spending equals tax receipts each year, could indeed worsen a contractionary gap. This is because during economic downturns, tax receipts typically decrease due to lower incomes and business profits. If the government were to reduce its spending to match the lower tax receipts, it would further reduce overall demand in the economy, potentially exacerbating the downturn.

Which of the Following Is True of an Annually Balanced