Sia
Question
Statistics
Posted 7 months ago
A government that has a budget balance enters a recession and decides to engage in expansionary fiscal policy.
Which of the following best describes what will most likely happen as a result of the expansionary fiscal policy?
Choose 1 answer:
(A) The government buys bonds
(B) Government borrowing decreases
(C) The central bank buys bonds
(D) The government runs a budget surplus
(E) The government runs a budget deficit
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
To analyze the impact of expansionary fiscal policy on a government's budget when starting from a balanced budget and entering a recession
step 2
Expansionary fiscal policy typically involves increased government spending or decreased taxation to stimulate economic growth
step 3
When a government increases spending without increasing taxes, it usually needs to finance the additional spending by borrowing, which leads to a budget deficit
∻Answer∻
E
Key Concept
Expansionary Fiscal Policy and Budget Deficit
Explanation
When a government engages in expansionary fiscal policy during a recession, it often results in increased government borrowing and a budget deficit.
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