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Running head: SPENDING TO FIGHT RECESSION AND A BALANCED BUDGET 1 Spending to Fight Recession and A Balanced Budget Merranda Ramirez ECO372 June 9, 2017 Ilisha Newhouse
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SPENDING TO FIGHT RECESSION AND A BALANCED BUDGET 2 Spending to Fight Recession and A Balanced Budget There are many arguments on how a country should run. Differing opinions suggest that there should be an increase in government spending during a recession. While, others suggest that the government should lower taxes. Additionally, there are opinions from economists that the country should have a balanced budget and others say that a country should have a surplus. Furthermore, some even suggest that a country should fall into a deficit during a recession. All theories help to build the economy and some theories have even been proven to work. Increased Government Spending to Fight Recessions Can a government spend its’ way out of a recession? One way or the only way a government receives revenue for their budget is through taxpayer’s dollars. During a recession taxes can be raised using fiscal policy creating a fiscal stimulus (Boundless, 2017). Taxes are collected determine the governments revenue and this determines the government’s budget. When taxes and government spending are equivalent, this creates a balanced budget. Conversely, when a government spends more than the taxes they receive, that puts the government’s budget into a deficit; a deficit that could ultimately lead to a recession. During a recession, there are numerous consequences. Taxpayers, private sectors, business, and the like, all stop spending. A recession creates a decline in the aggregate demand for goods and services. Most individuals will not spend money they do not have or money they cannot gain access to. Interest rates will be higher and borrows will not want to borrow. Unemployment will rise because businesses cannot afford the hired labor. Therefore, the government will also lose taxpayers dollars because people will not be spending.
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