Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
The budget will move into a deficit due to decreased tax revenues and increased transfer payments.
B
The budget will balance as government spending naturally decreases.
C
The budget will move into a surplus because people will pay more taxes during a recession.
D
The budget will remain unchanged regardless of economic conditions.
Understanding the Answer
Let's break down why this is correct
Answer
During a recession, the economy slows down, which means people earn less money and businesses make less profit. When this happens, the government collects less tax revenue because there are fewer incomes and sales to tax. At the same time, more people may need help from the government, like unemployment benefits, which increases government spending. Without any discretionary measures, like spending cuts or tax increases, the result is likely a larger budget deficit, meaning the government spends more than it earns. For example, if a town usually collects $1 million in taxes but only collects $600,000 during a recession while spending $800,000, it ends up with a $200,000 deficit.
Detailed Explanation
During a recession, people earn less money, so they pay less in taxes. Other options are incorrect because Some might think that spending goes down during a recession; It's a common mistake to think that tax payments increase during tough times.
Key Concepts
Government Budget Deficits
Fiscal Policy
Economic Recession
Topic
Government Budget Deficits
Difficulty
medium level question
Cognitive Level
understand
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