It is likely that a constitutional amendment that required the government always to run a balanced budget would
A)contribute to a more stable level of output.
B)mitigate the crowding-out effect.
C)eliminate the economy's automatic stabilizers.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

A constitutional amendment requiring a balanced budget would eliminate the government's ability to use fiscal policy as a stabilizing force in the economy. Automatic stabilizers, such as unemployment insurance and progressive income taxes, would also be eliminated or weakened. This would make it difficult for the government to respond to economic downturns, potentially contributing to more unstable levels of output. Additionally, the crowding-out effect, whereby government borrowing reduces private investment, may still occur even with a balanced budget constraint in place. Therefore, choices A and B are not correct.

It Is Likely That a Constitutional Amendment That Required the Government