A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Question

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During a recession, tax revenues tend to decrease because people earn less and spend less. This reduction in tax revenues reduces the federal government's income causing the federal budget deficit to increase. On the other hand, government spending on transfer payments automatically rises as the number of unemployed and underemployed people increases. All of these factors tend to increase the federal budget deficit.

A Recession Tends to Cause the Federal Budget Deficit to ________