Answer to Question #140501 in Macroeconomics for Rissa

Question

In a recession, holding everything else constant, a previously existing budget deficit will automatically, partly because total revenues from taxes.

Answer 1

Holding everything else constant the budget deficit would increase if the government experiences a recessionary gap. Budget deficits and surpluses are effective tools that aid at at stabilizing the economy. During recession, a decline in taxes, income and employment is witnessed. However, an increase the budget deficit is brought about by an increase in the unemployment rate. On the other hand, the government’s budget balance has a tendency to increase during an expansion ceteris paribus.