Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?
A)an increase in government purchases of goods and services
B)lower government transfers
C)lower taxes
D)higher interest rates

Question

Quizplus · Accepted Answer

Lower government transfers would reduce government spending and reduce the budget deficit, leading to a larger budget surplus.

Answer: C
 Lower taxes would reduce government revenue, but could potentially increase economic growth and productivity, leading to increased tax revenue in the long run. However, in the short run, lower taxes would lead to a smaller budget surplus or a larger budget deficit.

Which of the Following Fiscal Policies Would Make a Budget