Question : A budget that includes a deficit is:
Option 1: Expansionary
Option 2: Contractionary
Option 3: Neutral
Option 4: None of the above
Correct Answer: Expansionary
Solution : The correct answer is (a) Expansionary
Such a budget is considered expansionary because it stimulates economic growth and activity. When a government runs a deficit, it typically borrows money by issuing bonds or taking loans to cover the shortfall. This increased borrowing injects more money into the economy, which can lead to increased spending, investment, and overall economic growth.
It's important to note that the expansionary nature of a budget deficit depends on the economic context and the specific measures implemented by the government. In some cases, if the deficit is too large or unsustainable, it can have negative consequences, such as inflation, higher interest rates, and increased debt burden. However, generally speaking, a budget that includes a deficit is considered expansionary.
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