Question

If the economy were in a recession, we would expect:

• A. government expenditure to be low and tax revenues to be low, probably leading to a budget surplus.
• B. government expenditure to be high and tax revenues to be low, probably leading to a budget surplus.
• C. government expenditure to be high and tax revenues to be low, probably leading to a budget deficit.
• D. government expenditure to be high and tax revenues to be high, probably leading to a budget deficit

Answer 1

The correct option is C

government expenditure to be high and tax revenues to be low, probably leading to a budget deficit.

During a recession, tax revenues will be low due to low income in the economy. Government spending will be high to correct the situation, thus resulting in a budget deficit.