Question

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
a) increase; rise; falls
b) increase; fall; rises
c) decrease; rise; falls
d) decrease; fall; rises

Answer 1

Answer:

b) increase; fall; rises

Explanation:

Federal budget comes from tax revenues and was drained by transfer payments.

In a recession, firms go out of businesses and people don't spend much. There will be less tax on goods and firms' profits. On the other hand, more people become unemployed  and become entitled to receiving transfer payments.