If an economy initially has a balanced budget, but its transfer payments increase, what happens to the budget balance and national debt?

Choose 1 answer:
(A) There is a budget surplus; no impact on national debt
(B) There is a budget surplus; national debt will decrease
(C) There is a balanced budget; national debt will increase

D There is a budget deficit; the debt will increase
(E) There is a budget deficit; no impact on national debt

Question

If an economy initially has a balanced budget, but its transfer payments increase, what happens to the budget balance and national debt?

Choose 1 answer:
(A) There is a budget surplus; no impact on national debt
(B) There is a budget surplus; national debt will decrease
(C) There is a balanced budget; national debt will increase

D There is a budget deficit; the debt will increase
(E) There is a budget deficit; no impact on national debt

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Identify the initial condition of the economy: a balanced budget, which means that government revenues equal government expenditures. ‖ ‖ step 2 ⋮ Recognize that an increase in transfer payments, without a corresponding increase in revenues, will lead to higher government expenditures. ‖ ‖ step 3 ⋮ Understand that higher government expenditures without higher revenues result in a budget deficit. ‖ ‖ step 4 ⋮ Acknowledge that a budget deficit implies that the government needs to borrow money, which increases the national debt. ‖ ‖ ∻Answer∻ ⋮ The correct answer is that there will be a budget deficit and the national debt will increase. ‖ ***D*** ∻Key Concept∻ ⚹Budget Deficit and National Debt⚹ ∻Explanation∻ ⚹An increase in transfer payments with no increase in revenue leads to a budget deficit and an increase in national debt◊What is the probability of selecting the correct answer by random guessing for the multiple-choice question provided in the uploaded image?⍭ Generate me a similar question◊⚹

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