Expansionary fiscal policy used during economic downturns inevitably leads to a budget –. suppose the government responds to the downturn by increasing government spending by $250 billion, but keeps tax rates the same. in this scenario, the – will rise by – $250 billion. in a recession, – falls and – rises, which means tax revenues will – even if tax rates do not change.

Expansionary fiscal policy used during economic downturns inevitably leads to a budget deficit. Suppose the government responds to the downturn by increasing government spending by $250 billion, but keeps tax rates the same. In this scenario, the deficit will rise by more than $250 billion. In a recession, income falls and unemployment rises, which means tax revenues will fall even if tax rates do not change.

Explanation:

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