A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Question

Quizplus · Accepted Answer

A law mandating the government to balance its budget every year would limit its ability to stimulate the economy during the time of recession. This would lead to a decrease in government spending and a decrease in aggregate demand, which can lead to further economic downturns. It can also lead to political instability as policymakers may be forced to make hasty and unpopular decisions during an economic crisis to achieve a balanced budget. Therefore, such a law would act as an automatic destabilizer.

A Law Requiring the Government to Balance Its Budget in Each