Budget deficit is appropriate during A. recession, but not inflation. B. inflation, but not recession. C....
Budget deficit is appropriate during
| A. | recession, but not inflation. | |
| B. | inflation, but not recession. | |
| C. | recession and inflation. | |
| D. | neither recession nor inflation |
and why ?( pls explain)
Homework Answers
When the savings done by the government is negative, it is said as the budget deficit. It is a situation in which the government spending is more than the revenue collected from taxes.
The Keynesian analysis proposes that the rise in budget deficit during recession is good for the economy. This is because during recession, the private spending falls and saving rises which leads to unused resources. In such situation, government borrowing will utilise these unused savings to kickstart the economy. These spending can help to promote higher growth.
But during inflationary period, the budget deficit will raise the aggregate demand in the economy and cause further rise in inflation. Therefore, budget deficit is good for recession, but not during inflation.
Hence, option ‘A- recession, but not inflation’ is correct.
Add Answer to:
Budget deficit is appropriate during
A.
recession, but not inflation.
B.
inflation, but not recession.
C....
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