Question

Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds. As a result, the federal budget will: Choose one: A. be in surplus by $50 billion. B. be in deficit by at least $50 billion. C. remain balanced. D. be in surplus by at least $50 billion. E. be in deficit by less than $50 billion.

Answer 1

B: Be in deficit by at least $50 Billion

Step-by-step explanation:

Budget deficit refers to a situation where a country spends more than it's revenue from standard operations. The extra expenditure is usually financed by debt through the sale of treasury bills and other instruments.

It could also be financed by printing more money. However this could lead to hyperinflation.