Question

m6 l.1: budget deficits quiz
economics (fa25) wa 1 / economics / module 6: surpluses, deficits, debt, and international trade

1. which of the following is not a problem that might be associated with deficit spending during a recession?

political considerations that are incompatible with meeting macroeconomic goals
crowding out effect
moving the ad curve to the right, thus increasing real gdp and eventually lowering the unemployment rate.
procyclical actions of state and local government that may offset federal fiscal policy

Explanation:

• Political considerations: During recessions, political motives (e.g., short - term popularity) can conflict with long - term macroeconomic goals (e.g., sustainable growth), which is a problem with deficit spending.
• Crowding - out effect: When the government borrows heavily (deficit spending), it can increase interest rates, reducing private investment. This is a well - known problem associated with deficit spending.
• AD curve shift: Moving the Aggregate Demand (AD) curve to the right (through deficit spending) and increasing real GDP and lowering unemployment is a desired outcome of deficit spending during a recession, not a problem.
• Procyclical state/local actions: State and local governments often cut spending during recessions (procyclical, as they do the opposite of federal stimulus), which can offset federal fiscal policy, a problem with deficit spending.

Answer:

moving the AD curve to the right, thus increasing real GDP and eventually lowering the unemployment rate.