If government budgets were required to be annually balanced,
A)both d and e
B)income taxes could no longer be used
C)either government spending would have to fall or tax rates would have to increase during recessions
D)the government budget would have a greater stabilizing component
E)the automatic stabilizers would work better

Question

Quizplus · Accepted Answer

If government budgets were required to be annually balanced, during recessions when tax revenues fall, the only option left would be to cut government spending or increase tax rates to balance the budget. This would make it more difficult for the government to use expansionary fiscal policy to stabilize the economy. Therefore, the government budget would have a weaker stabilizing component, rather than a stronger one as in options D and E. Option B is not necessarily true since other sources of revenue could still be used besides income taxes.

If Government Budgets Were Required to Be Annually Balanced