Why do recessions tend to make the deficit increase T TArial

Why do recessions tend to make the deficit increase? T TArial 3 (12pt) Words:0h Path: p QUESTI 10 points Save Answer Would government spending on education increase or decrease economic growth? What if this spending was financed through borrowing? T T T Arial Words:0 Path: p

Solution

Q.1 Deficit refers increased spending and decreased revenues for a government. During a recession, many employers lose job which reduces the demand and consumption for goods. So when the income and consumption decreases the tax revenue for the government reduces while to boost the economy the government reduces tax rates which further reduce the tax revenues. During recession, governments increase spending so that more people would get job and there would be increased economic growth. So with decreased revenue and increased spending the deficit increases during recession.

Q.2 Nations with increased standard of living and purchasing power have made good investments on education. The time required to realize the government investment on education is a long term and government have benefited by spending on education sector. The investment on education is an investment on human capital which increases the technology and productivity of a nation. Higher education helps to understand the diseases better, improve the devices used, improves communication, agricultural and industrial productivity etc.

If the spending was financed through borrowing, then though it would cost to the nations spending in short run but it would help to improve the growth and the investment can be realised in 5 to 6 years, as the economic growth demands for improved human capital.