Question

During the Great Recession of 2008–2009, what actions would have been required of Congress and the President had a balanced budget amendment to the Constitution been ratified? What impact would that have had on the unemployment rate?

a) Increase government spending and reduce taxes; decrease unemployment
b) Decrease government spending and increase taxes; increase unemployment
c) Maintain existing policies; no impact on unemployment
d) Implement austerity measures; uncertain impact on unemployment

Answer 1

If a balanced budget amendment had been in place during the Great Recession, Congress and the President would have been forced to implement austerity measures such as increasing taxes or reducing government spending, which could generally increase unemployment though the specific impact is uncertain. d) Implement austerity measures; uncertain impact on unemployment.

Step-by-step explanation:

During the Great Recession of 2008-2009, if a balanced budget amendment had been ratified, Congress and the President would have been required to either increase taxes, reduce spending, or a combination of both to keep the federal budget in balance. Given the economic climate during the Great Recession, these measures would likely have led to further economic decline. The correct answer to the multiple-choice question is:
d) Implement austerity measures; uncertain impact on unemployment.

Typically, during a recession, an expansionary fiscal policy involving increased government spending and/or decreased taxes is employed to stimulate the economy. However, a balanced budget amendment would have made this impossible without offsetting measures. Seeing as the economic environment requires greater spending to counteract the recession, such a budget restriction could have forced the government to implement austerity measures, which may have generally worsened unemployment, although the specific impact could be uncertain as it depends on various other economic factors at play.