When the federal budget is used as a tool for economic stabilization, the ideal goal is to: a

Business Dec 23, 2020

When the federal budget is used as a tool for economic stabilization, the ideal goal is to:

a. balance the budget over the entire business cycle

b. balance the budget each year

c. balance the budget during expansions

d. run a surplus during contractions

Expert Solution

The answer is a).

For budget to be a tool for economic stabilization, it is necessary that government increases spending or decreases taxes during an economic recession in order to stimulate demand and decreases spending or increases taxes during an economic expansion, in order to prevent the economy from overheating. Thus, it is desirable that the increase and decrease over the course of business cycles more or less offset each other such that the effect is neutral in the long run.

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