Is it correct that the increase in the budget deficit during a recession indicat

Question

Is it correct that the increase in the budget deficit during a recession indicates that policymakers have implemented expansionary fiscal policies to bring the economy out of recession?

A. Yes, an increase in the budget deficit during a ression implies that policymakers have implemented an expansionary fiscal policy.

B. No, the main source of an increase in the budget deficit during a recession is an expansionary monetary policy.

C. No, the main source of an increase in the budget deficit during a recession is the rise of the shadow economy.

D. No, the main source of an increase in the budget deficit during a recession is an increase in the cyclical deficit.

Can someone explain the answer and why it is the way that it is?

Explanation / Answer

A. Yes, an increase in the budget deficit during a ression implies that policymakers have implemented an expansionary fiscal policy.

This policy is a form of fiscal policy in which an increase in government purchase, a decrease in taxes, and/or an increase in transfer payments ae used to correct the problems of a business cycle contraction.Expansionary fiscal policy is used to address business-cycle instability that gives rise to the problem of unemployment, that is, to close a recessionary gap. A recessionary gap exists if the existing level of aggregate production is less than what would be produced with the full employment of resources. Thus creating a budget deficit.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.