If a government always balances its budget:
A) the economy can never slide into a recession.
B) raising taxes has no net effect on total spending.
C) economic growth is spurred by showing businesses that budgets can be balanced.
D) the effect of an increase in government spending on aggregate expenditures is weakened.

Question

Quizplus · Accepted Answer

If a government always balances its budget, the effect of an increase in government spending on aggregate expenditures is weakened. This is because in order to fund the spending, the government would need to increase taxes or reduce spending elsewhere, offsetting the initial spending increase. This can be detrimental to economic growth, especially in times of recession when government spending can stimulate aggregate demand. Therefore, a government should not always prioritize balancing its budget over other economic priorities.

If a Government Always Balances Its Budget