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Basic Question 2 of 8
If the government uses a discretionary fiscal policy to combat a recession and the tax rate is not changed, the policy will most likely lead to a ______.
B. budget deficit
C. budget surplus
A. balanced budget
B. budget deficit
C. budget surplus
User Contributed Comments 4
| User | Comment |
|---|---|
| surjoy | Excellent question. |
| Raok | when it said tax rate is not changed, that means they are at a budget surplus? Or else why does the question have to specificy state tax rate is not changed |
| leftcoast | Raok - They could be at a deficit, surplus or have a balanced budget before hand. Where they start from doesn't really matter all that much. If government expenditures are increased and the tax rate remains the same it will most likely lead to a budget deficit, regardless of where you started from. I suppose if they were running a very large surplus you could end up with a balanced budget or a small surplus. But the question asked what is most likely. |
| KarenMaciel | Discretionary fiscal policy govt spending and taxation during recession- govt needs to spend more to stabilize the economy without tax increase- this would result in budget deficit |
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Learning Outcome Statements
describe roles and objectives of fiscal policy as well as arguments as to whether the size of a national debt relative to GDP matters
CFA® 2024 Level I Curriculum, Volume 1, Module 3.