All of the following contribute to greater deficits when unemployment rises and reduce the deficit during...

All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for:

Interest payments on the debt.

Welfare benefits.

Progressive personal income taxes.

Unemployment insurance benefits.

Expert Solution

Increase in unemployment means there will be an increase in unemployment insurance benefits. This is a factor that increases deficit during recession. Another event that contributes to increasing deficit is the social welfare benefits which increases during recession. in case of inflationary gap when there is expansion in the economy, tax collection increases due to higher income and this helps in reducing the deficit. Interest payment on the debt does not increase or decrease the deficit according to the business cycle

Select interest payment on debt

Rahul Sunny answered 2 years ago

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