Question

1 surplus budget: budget:_________ : deficit budget: Recession​

Answer 1

Surplus budget: Expansion:: Deficit budget: Recession

• Governments incline to run deficits during recessions and surpluses at the time of expansions.
• If the economy is in an expansion and suffering inflation, a budget surplus works to solidify the economy. In this instance, taxes boost in reaction to the increase in employment and income. At that exact time, government expenses fall as limited individuals receive unemployment compensation and other transfer payments. These differences work to lower the level of consumption and thus the level of aggregate demand. Therefore, the surplus works to establish the economy during inflationary periods.
• In the case of a recession, we know that revenue falls while expenditures surge thereby generating a deficit. In order to balance the budget, the government must put forward more revenue by increasing taxes and reducing expenditures.

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