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 must do.
B)Such a policy would require government to increase its spending when tax receipts fell.
C)Such a policy became popular between the 1930s and 1960s.
D)Such a policy would guarantee that the economy always remained at its potential level.
E)Such a policy could worsen a contractionary gap.

Question

Quizplus · Accepted Answer

An annually balanced budget could worsen a contractionary gap because it would require the government to cut spending or raise taxes during a recession, which could further reduce aggregate demand and exacerbate the economic downturn.

Which of the Following Is True of an Annually Balanced