Assume that the government is currently balancing the national budget so that outlays equal tax revenue.Then the economy slips into recession,and the government decides to increase government spending by $50 billion.The government must pay for this by borrowing; it must sell $50 billion worth of bonds.As a result,the federal budget will:

Question

Quizplus · Accepted Answer

Increasing government spending by $50 billion beyond the current balanced budget would result in a deficit that is at least $50 billion (assuming tax revenue remains constant). This is because the government must borrow funds to finance the spending, resulting in an increase in the national debt. Therefore, the correct answer is choice (E).

Assume That the Government Is Currently Balancing the National Budget