Question

Why is a Surplus Budget NOT suitable during a recession?

Options

• It is associated with welfare state objectives

• It may reduce output and employment

• It increases aggregate demand excessively

• It promotes employment and economic growth

Answer 1

A Surplus Budget reduces aggregate demand, which helps control inflation but is harmful during a recession. If applied in a recession, it may reduce output and employment further; a Deficit Budget is the appropriate tool in such conditions.