Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy slips
into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds. As a result?
The fiscal policy decition will derive in a deficit by at least $50 billion in the country federal budget.
Step-by-step explanation:
Remember that changes in fiscal policy, imply decreases and increases to taxes and government spending.
In a recession situation, everyone would expect an <u>expansionary</u> fiscal policy (two examples would be tax cuts and increased government spending).
