Question

Imagine the federal government has a national debt of $10.2 trillion. Congress's budget for the coming year includes a spending projection of $4.2 billion. Tax revenue projects $3.8 billion. Which fiscal policy should Congress adopt to avoid increasing the national debt?
Cut interest rates
Decrease spending
Lower taxes
Raise reserve requirements

Answer 1

I think it would be "Decrease Spending" but in not 100% sure about that answer 

Answer 2

The correct option is (B).

Decreasing spending will be the best fiscal policy for Congress to avoid the increasing national debt.

Further Explanation:

Fiscal policy:

Fiscal policy is the policy which is implemented by the government of the country to regulate the economy.

The fiscal policies are implemented to reduce the government spending or the public spending, and to regulate the tax structure. The main motive of implementing fiscal policy is to maintain economic growth, and employment rate in the economy.

Justification for the correct and incorrect option:

(A)

Cut interest rates: This option is incorrect.

To avoid the increasing national debt, Congress should decrease the spending. So the Congress does not need to take debt. Cutting of interest rates will make people invest more and spend more.

(B)

Decrease spending: This option is correct.

To avoid the increasing national debt, Congress should decrease the spending. So the Congress does not need to take debt, and it will lead to less borrowing.

(C)

Lower taxes: This option is incorrect.

To avoid the increasing national debt, Congress should decrease the spending. So the Congress does not need to take debt. Lowering the taxes will reduce the government revenue, and will lead to a loss in government spending.Reducing taxes will make the government difficult to meet the expenses.

(D)

Raise reserve requirements: This option is incorrect.

To avoid the increasing national debt, Congress should decrease the spending. So the Congress does not need to take debt. Raising reserve requirements will be the last option for any government to meet its liabilities or expenses.

Therefore, Congress should try to reduce their spending to decrease the national debt.

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Answer Details:

Grade: High school

Chapter: Fiscal policy

Subject: Economics

Keywords:

Imagine the federal government has a national debt of $10.2 trillion. Congress's budget for the coming year includes a spending projection of $4.2 billion. Tax revenue projects $3.8 billion. Which fiscal policy should Congress adopt to avoid increasing the national debt, cut interest rates, decrease spending, lower taxes, and raise reserve requirements.