Which of the following is true if the government attempts to balance its budget when the economy is in a recession and the government is running a budget deficit?
A)Inflation would result.
B)The unemployment rate would decrease.
C)Government spending would have to increase.
D)GDP would increase.
E)The action would be pro-cyclical.

Question

Quizplus · Accepted Answer

Trying to balance the budget during a recession would be pro-cyclical because it would reduce government spending and further slow down the economy. It could potentially make the recession worse and cause higher unemployment rates. There is no guarantee that inflation would result or that GDP would increase. Therefore, the best choice is E.

Which of the Following Is True If the Government Attempts