Most economists believe that a balanced budget requirement would:
A)undermine the role of taxes and transfers as automatic stabilizers.
B)enhance the effect of automatic stabilizers.
C)strengthen the ability of policy makers to conduct discretionary fiscal policy.
D)not have any impact on the role of taxes and transfers as automatic stabilizers.

Question

Quizplus · Accepted Answer

A balanced budget requirement would limit the ability of the government to use fiscal policy to counteract economic fluctuations. Taxes and transfers are important automatic stabilizers that automatically adjust to changes in economic conditions. If a balanced budget requirement is in place, the government may be forced to cut spending or raise taxes even when these measures could exacerbate an economic downturn. As a result, the effectiveness of automatic stabilizers would be undermined.

Most Economists Believe That a Balanced Budget Requirement Would