An increase in government expenditures that ________ the budget deficit in an example of ________.

Question

Quizplus · Accepted Answer

When government expenditures increase and lead to a larger budget deficit, it is an example of using discretionary fiscal policy. This means that the government is intentionally taking action to change the level of aggregate demand in the economy. Automatic stabilization, on the other hand, occurs automatically without deliberate action from the government, such as changes in tax revenue and welfare payments that occur during a recession. Therefore, A and C are incorrect choices. D is also incorrect because lowering government expenditures would decrease aggregate demand, which is not desirable during a recession, especially when there is a need for stimulus.

An Increase in Government Expenditures That ________ the Budget Deficit