Assume that the economy is in a recession and the government is experiencing a budget deficit.What happens if balanced-budget fiscal policy is used to eliminate the deficit?

Question

Quizplus · Accepted Answer

Balanced-budget fiscal policy involves reducing government spending to match tax revenue, which would result in a decrease in government spending. This could exacerbate the recession and result in higher unemployment and lower GDP. Therefore, the best choice is E, as government spending will fall.

Assume That the Economy Is in a Recession and the Government