The government budget must be balanced in order to have an equilibrium in the circular flow model.

Question

Quizplus · Accepted Answer

The statement is incorrect. In the circular flow model, a government budget deficit (when government spending exceeds its revenue) can stimulate economic growth and increase employment in the short-term. However, a sustainable fiscal policy would aim to achieve a balanced budget over the long-term to avoid accumulating excessive national debt.

The Government Budget Must Be Balanced in Order to Have