Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Question

Quizplus · Accepted Answer

In a recession, tax revenues typically fall due to lower income and corporate earnings, while expenditures on transfer payments (like unemployment benefits) increase as more people qualify for these benefits. This combination leads to a budget deficit.

Suppose an Economy Has a Balanced Federal Budget, and a Large