Question

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment that would require the Federal government to balance its budget during a recession would be:a. Expansionary and worsen the effect of the recessionb. Contractionary and counter the effect of the recessionc. Contractionary and worsen the effect of the recessiond. Expansionary and counter the effect of the recession

Answer 1

Answer:

The correct answer is letter "B": Contractionary and counter the effect of the recession.

Explanation:

A Contractionary Strategy is a macroeconomic tool for slowing an economy. There are three (3) main ways to implement a contractionary policy in a country: increase interest rates, increase reserve requirements, or reduce the money supply. Those changes are enacted by the central bank which is the Federal Reserve (Fed) in the U.S.

In the case given, if there is a need to adjust the budget of a country because of a recession, the Federal government has to implement a contractionary policy to mitigate the effects of the recession.