To maintain a balanced budget during the sag in personal spending in 2008 could cause a
A)further increase in aggregate demand and inflation.
B)further increase in aggregate demand and unemployment.
C)further decrease in aggregate demand and a recession.
D)further decrease in aggregate demand and inflation.

Question

Quizplus · Accepted Answer

When personal spending decreases, it leads to a decrease in aggregate demand. To maintain a balanced budget, the government might cut back on its own spending, which could further decrease aggregate demand, potentially leading to a recession. Option A is incorrect because a decrease in personal spending would not cause an increase in aggregate demand or inflation. Option B is incorrect because cutting back on government spending would not cause an increase in unemployment. Option D is incorrect because a decrease in aggregate demand would lead to deflation rather than inflation.

To Maintain a Balanced Budget During the Sag in Personal