Most mainstream macroeconomists oppose a strict requirement to balance the federal budget annually because they conclude that such a requirement would
A) increase real interest rates and drive out investment spending.
B) eliminate monetary policy as a stabilization tool.
C) force government to undertake expansionary ﬁscal policy during inﬂation and contractionary ﬁscal policy during recession.
D) expand the size of the federal government.

Question

Quizplus · Accepted Answer

A strict requirement to balance the federal budget annually would limit the government's ability to use fiscal policy as a tool for economic stabilization. During inflation, the government would need to increase spending or decrease taxes to balance the budget, which is expansionary policy. Conversely, during a recession, the government would need to decrease spending or increase taxes, which is contractionary policy. This could exacerbate economic fluctuations instead of smoothing them.

Most Mainstream Macroeconomists Oppose a Strict Requirement to Balance the Federal