The public debt is affected by recessions because they automatically move the government budget balance down the budget function:
A) increasing real interest rates.
B) decreasing the value of the dollar.
C) increasing government spending on transfers and decreasing tax revenue to reduce net tax revenue.
D) decrease government spending on transfers and increasing tax revenue to increase net tax revenue.

Question

Quizplus · Accepted Answer

During recessions, government spending on transfers (like unemployment benefits) typically increases, while tax revenues decrease due to lower incomes and economic activity. This combination reduces net tax revenue, moving the budget balance down the budget function.

The Public Debt Is Affected by Recessions Because They Automatically