What is likely to happen to a country's budget deficit if the government increases spending without raising taxes during a period of economic stagnation? A. The budget deficit will decrease because government spending will stimulate economic growth. B. The budget deficit will increase because government spending exceeds tax revenue. C. The budget deficit will remain unchanged because the increase in government spending is offset by increased tax revenue from stimulated economic activity. D. The budget deficit will turn into a budget surplus because increased government spending always leads to higher tax revenues in the long run.

What is likely to happen to a country's budget deficit if the government increases spending without raising taxes during a period of economic stagnation? A. The budget deficit will decrease because government spending will stimulate economic growth. B. The budget deficit will increase because government spending exceeds tax revenue. C. The budget deficit will remain unchanged because the increase in government spending is offset by increased tax revenue from stimulated economic activity. D. The budget deficit will turn into a budget surplus because increased government spending always leads to higher tax revenues in the long run.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1DQ

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