Question

Suppose the government of Spartania increased its spending by $900 million to fight a recession. If the government’s budget was balanced before the recession, which of the following will be most likely to happen by the end of the year? (Assume there are no changes in the tax rate.) If Choose one: A. The government will have a budget deficit of more than S900 million. B. The government will have a balanced budget. C. The government will have a budget deficit of less than $900 million. D. The government will have a budget deficit of exactly S900 million

Answer 1

A. The government will have a budget deficit of more than $900 million.

Step-by-step explanation:

The government had a balanced budget before the recession and it increased its spending by $900 million without any changes in the tax rate. It might seem that the increased spending will lead to a deficit of $900 million. However, during the recession, tax revenue falls as unemployment increases, further increasing the budget deficit.

Answer 2

b. the government will have a balanced budget