When the unemployment rate increases, the budget:
A)is unaffected.
B)tends to move into deficit.
C)tends to move into a surplus.
D)remains neutral.

Question

Quizplus · Accepted Answer

When the unemployment rate increases, the number of people who are not earning and paying taxes increases, leading to a decrease in tax revenue for the government. At the same time, the government needs to provide unemployment benefits and other forms of social welfare that also increase government expenditure. This leads to a situation where the government expenditures increase, and revenue decreases, leading to a budget deficit.

When the Unemployment Rate Increases, the Budget