Question

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Answer 1

An economic expansion tends to cause the federal budget deficit to decrease because tax revenues rise and government spending on transfer payments falls.

What is economic expansion?

Economic expansion occurs when real GDP raises from a trough to a peak within two or more subsequent quarters. The expansion occurs during times of economic stimulation when there is a rise in employment, followed by consumer confidence and discretionary spending. The stage is additionally referred to as economic recovery. When expansion reaches its pinnacle, a peak happens. With a large sum of demand for goods, inflation occurs when costs begin to increase. Gradually, consumers begin to buy less. After reaching the peak, economic growth starts to decrease. While the phrases inflation and deflation refer to rising and falling prices of commodities, goods, and services relative to the value of money, economic contraction and expansion refer to the overall output of all goods and services.

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