With a balanced budget over the business cycle, surpluses during expansions offset deficits during contractions.

Question

Quizplus · Accepted Answer

During economic expansions, tax revenues tend to rise and government spending on items such as unemployment benefits tends to decrease, leading to surpluses. Conversely, during economic contractions, tax revenues tend to decrease and social safety net spending tends to increase, leading to deficits. By balancing the budget over the business cycle, surpluses can be used to offset deficits, leading to a more stable fiscal policy.

With a Balanced Budget Over the Business Cycle, Surpluses During