Assume that the economy is in a recession and has a balanced budget.If the government increases its spending to reduce unemployment,what will happen to GDP and the government's budget?
A)GDP will rise and the budget will be in a deficit.
B)GDP will fall and the budget will be in a deficit.
C)GDP will rise and the budget will be in a surplus.
D)GDP will fall and the budget will be in a surplus.

Question

Quizplus · Accepted Answer

An increase in government spending in a recession is a form of fiscal stimulus that can lead to an increase in GDP through a multiplier effect. However, since the government is starting with a balanced budget, the additional spending will have to be funded through borrowing, leading to a budget deficit.

Assume That the Economy Is in a Recession and Has