Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.
A)decrease; decrease
B)decrease; increase
C)increase; decrease
D)increase; increase

Question

Quizplus · Accepted Answer

To maintain a balanced budget during a recession, the government would need to increase taxes to offset decreased tax revenues from lower economic activity. Increasing taxes, however, would decrease aggregate demand by reducing the amount of income available for consumers to spend.

Suppose the Government Wants to Maintain a Balanced Budget