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Government Budget Deficits
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Which of the following statements accurately describe the implications of government budget deficits during an economic recession? Select all that apply.

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Choose the Best Answer

A

Government budget deficits typically increase during recessions due to lower tax revenues.

B

Persistent budget deficits can lead to a decrease in overall national debt over time.

C

Increased government spending in response to a recession may temporarily exacerbate budget deficits.

D

A government budget deficit means that the government is operating efficiently with its resources.

E

Higher transfer payments during a recession can contribute to a larger budget deficit.

Understanding the Answer

Let's break down why this is correct

Answer

During an economic recession, a government budget deficit occurs when the government spends more money than it collects in taxes. This can be necessary because the government may need to increase spending to help people and businesses struggling during tough economic times. For example, if unemployment rises, the government might spend more on social programs to support those without jobs. However, running a deficit can also lead to increased national debt, which means future generations may have to pay it back. Ultimately, while deficits can provide immediate relief, they also require careful management to ensure long-term economic health.

Detailed Explanation

Other options are incorrect because Many think deficits go up because the government spends more; Some believe that having a deficit will reduce national debt over time.

Key Concepts

Government Budget Deficits
Fiscal Policy
Economic Recession
Topic

Government Budget Deficits

Difficulty

medium level question

Cognitive Level

understand

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