Question

How might a government deficit affect the circular flow of income?
Taxes could be increased to fix the deficit, giving consumers more money to spend.
Taxes could be decreased to fix the deficit, giving consumers less money to spend.
Government spending could rise due to the deficit, and the economy could grow.
Government spending could drop due to the deficit, and the economy could slow down.

Answer 1

Answer:

Option B

Explanation:

Government deficit is a situation where government print additional currency to make up the gap. The income flow is not affected immediately but gradually. So as a precautionary measure government increases price and curtail people from expenditure and thus reduces the tax. The government deficit, if used an investment can generate more income, employment and other tangible benefits.

Hence, option B is correct

Answer 2

Answer:

D. Government spending could drop due to the deficit, and the economy could slow down.

Explanation:

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