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Question
Microeconomics
Posted 5 months ago
The government of Hamsterville had a balanced budget, but now is experiencing a recession.
Which of the following is most likely to occur as a result of the recession?
Choose 1 answer:
(A) A budget deficit
(B) A balanced budget
(C) Higher tax revenue
(D) Less debt
(E) A budget surplus
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Answer from Sia
Posted 5 months ago
Solution
a
Recession Impact: During a recession, economic activity slows down, leading to lower income and profits for individuals and businesses. This typically results in lower tax revenues for the government
b
Government Spending: At the same time, government spending on social welfare programs (like unemployment benefits) tends to increase to support those affected by the recession
c
Budget Deficit: The combination of lower tax revenues and higher government spending usually leads to a budget deficit, where government expenditures exceed revenues
Answer
(A) A budget deficit
Key Concept
Budget Deficit
Explanation
During a recession, the government of Hamsterville is likely to experience a budget deficit due to decreased tax revenues and increased spending on social welfare programs
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