A balanced budget rule which precluded a deficit in any fiscal year would
A) stabilize short- and medium-term GDP
B) exacerbate recessions
C) be equivalent to handing fiscal policy to an independent agency, just as monetary policy is handled by an independent central bank
D) create a more predictable environment conducive to investment
E) cause the national debt to rise at the same rate as inflation

Question

Quizplus · Accepted Answer

A balanced budget rule that precludes deficits can exacerbate recessions because it would limit the government's ability to engage in counter-cyclical fiscal policy, such as increasing spending or cutting taxes to stimulate the economy during downturns.

A Balanced Budget Rule Which Precluded a Deficit in Any