Question : A government budget that includes provisions for an economic downturn is known as:
Option 1: A countercyclical budget
Option 2: A balanced budget
Option 3: A deficit budget
Option 4: A surplus budget
Correct Answer:
A countercyclical budget
Solution : The correct answer is (a) A countercyclical budget.
A countercyclical budget refers to a government budget that includes provisions to address and mitigate the impact of an economic downturn or recession. It involves implementing policies and measures that aim to stabilize the economy during periods of contraction and stimulate economic growth.
In a countercyclical budget, the government typically increases spending or reduces taxes during an economic downturn to boost aggregate demand and support economic activity. This approach helps to offset the negative effects of the downturn by providing a fiscal stimulus to the economy. Conversely, during periods of economic expansion, the government may adopt a more conservative approach by reducing spending or increasing taxes to prevent overheating and inflation.
The purpose of a countercyclical budget is to promote economic stability and mitigate the adverse effects of economic fluctuations on employment, income, and overall economic well-being.
