Question

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Answer 1

Answer: increase, fall, rise

Explanation:

A recession brings about a reduction in the activity in an economy as there is a reduction in the goods that are demanded. When there's recession, the budget deficit tends to worsen as government spends more. This is due to the fact that there's a reduction in the taxes as lesser goods are demanded and there's an increase in unemployment. Also, the government's spending on transfer payment will also increase.