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 remain balanced as expenditures decrease during a recession.
C
The budget will move into a surplus because the government can save money during a recession.
D
The budget will fluctuate without a clear trend because of varying economic factors.
Understanding the Answer
Let's break down why this is correct
Answer
When the economy is in a recession, businesses earn less money, and many people may lose their jobs. As a result, the government collects less tax revenue because fewer people are working and spending money. At the same time, the government may need to spend more on programs like unemployment benefits to help those who are struggling. This combination of lower income from taxes and higher spending can lead to a 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 needing to spend $800,000 on support programs, it will have a deficit of $200,000.
Detailed Explanation
During a recession, people earn less money. Other options are incorrect because Some might think that spending goes down during a recession; It's a common belief that the government saves money in tough times.
Key Concepts
Government Budget Deficits
Economic Recession
Fiscal Policy
Topic
Government Budget Deficits
Difficulty
easy level question
Cognitive Level
understand
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