📚 Learning Guide
Fiscal Policy in Recessions
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How does a budget deficit during a recession potentially aid in economic recovery?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

By reducing government spending

B

By increasing taxation

C

By financing public investments and stimulating demand

D

By decreasing the money supply

Understanding the Answer

Let's break down why this is correct

Answer

A budget deficit during a recession can help the economy recover by allowing the government to spend more money than it collects in taxes. This extra spending can support jobs and stimulate demand for goods and services, which is important when people are not spending as much. For example, if the government invests in building new roads or schools, it creates jobs for construction workers and boosts local businesses. Even though the government is borrowing money, this spending can lead to increased economic activity, helping the economy grow again. In the long run, as the economy improves, higher tax revenues can help pay off the deficit.

Detailed Explanation

When the government spends more money than it earns, it can invest in projects. Other options are incorrect because Some think cutting spending helps the economy; Many believe raising taxes brings in more money for the government.

Key Concepts

budget deficit
economic recovery
Topic

Fiscal Policy in Recessions

Difficulty

medium level question

Cognitive Level

understand

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