The Main Reason That the Deficit Grows in a Recession

question 6

Multiple Choice

The main reason that the deficit grows in a recession is that

• A) the government reacts quickly and adjusts taxes to compensate.
• B) monetary policy that targets interest rates causes the costs of borrowing to fall.
• C) the deficit causes the recession, and reducing the deficit cures the recession.
• D) many forms of taxes act as automatic stabilizers.

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Definitions:

Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business.

Net Present Value

A financial metric used to evaluate the profitability of an investment, representing the difference between the present value of cash inflows and outflows over a period.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of maximizing shareholder wealth.

Investments

Assets or items acquired with the goal of generating income or appreciation in value over time.