Some politicians have suggested that the United states enact a constitutional am

Question

Some politicians have suggested that the United states enact a constitutional amendment requiring that the federal government balance its budget annually. such an amendment, if strictly enforced, would force the governments to enact a contractionary fiscal policy whether the economy experienced a severe recession. This is because when the economy enters a recession, net tax revenue falls and transfer payments rise. Balancing the budget would raising transfer payments and raising taxes. net tax revenue rises and transfer payments fall. Balancing the budget would raising transfer payments and raising taxes. net tax revenue falls and transfer payments rise. Balancing the budget would raising transfer payments and raising taxes. net tax revenue rises and transfer payments fall. Balancing the budget would raising transfer payments and raising taxes.

Explanation / Answer

Net tax revenue falls and TR rise therefore, Balancing the budget requires raising taxes and lowering transfer payments (contractionary fiscal policy).

Tax revenue is extracted from income and when income falls economy has entered into recession then tax revenue will fall.

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