Which of the following statements concerning a budget deficit is true?
A)It is smaller if the economy is in the midst of a severe recession.
B)It is smaller if the economy is experiencing strong aggregate demand.
C)It reduces the size of the national debt.
D)It can be measured in terms of the amount of unemployment that it causes.

Question

Quizplus · Accepted Answer

A budget deficit occurs when government spending exceeds government revenue. Therefore, in an economy experiencing strong aggregate demand, tax revenues are high due to increased economic activity, helping to reduce the budget deficit. In contrast, during a severe recession, tax revenues are typically low, and government spending might need to increase to stimulate economic growth, exacerbating the budget deficit. The national debt is not necessarily reduced by a budget deficit, as the government needs to borrow to cover the shortfall. The amount of unemployment caused by a budget deficit is not a valid measure of its size.

Which of the Following Statements Concerning a Budget Deficit Is