📚 Learning Guide
Government Budget Deficits
easy

During an economic recession, which of the following scenarios is most likely to lead to a government budget deficit?

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Choose the Best Answer

A

Increased unemployment benefits leading to higher government spending

B

A rise in tax revenues due to increased consumer spending

C

A government initiative to cut taxes for businesses without increasing spending

D

Decrease in public services to balance the budget immediately

Understanding the Answer

Let's break down why this is correct

Answer

During an economic recession, many people lose their jobs, and businesses earn less money. This leads to lower tax revenues for the government because fewer people are working and making money to be taxed. At the same time, the government often spends more money to help those in need, such as providing unemployment benefits or funding public services. For example, if a city has to pay more for social programs while receiving less tax money, it can create a budget deficit, meaning the government is spending more than it earns. Therefore, the combination of lower income and higher spending during a recession is what most likely causes a government budget deficit.

Detailed Explanation

When more people are unemployed, the government pays more in unemployment benefits. Other options are incorrect because Some might think that more spending by people means the government gets more tax money; It's easy to think that cutting taxes will help businesses without costing the government.

Key Concepts

Government Budget Deficits
Economic Recession
Fiscal Policy
Topic

Government Budget Deficits

Difficulty

easy level question

Cognitive Level

understand

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