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When a government spends more than it brings in, it runs a budget deficit. Think about...

When a government spends more than it brings in, it runs a budget deficit. Think about the difference between a government's structural deficit as opposed to the cyclical deficit. Along these lines, why might a government run a higher budget deficit during an economic downturn?  

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Answer #1

During an economic downturn, there is a serious hit on the aggregate demand of the economy and the income level. With less demand, there is less production and there is a decrease in income. With a lower level of income, there are a lower amount of taxes available for the government which can cause the deficit. The cyclical deficit occurs as a part of the business cycle. To overcome the economic downturn, the government may increase the spending which will also lead to a higher deficit.

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