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It would compel the government to cut spending to offset lost tax revenues, which decline during recessions. prevent the government from employing an expansionary fiscal policy, since increased government spending would have to be offset by increased taxes. require the government to increase spending to match increased tax revenues, pushing up interest rates and crowding out private spending. force the Fed to pursue an expansionary monetary policy, which would cause inflation, undermining economic growth.

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Answer:

  • It would compel the government to cut spending to offset lost tax revenues, which decline during recessions.
  • Prevent the government from employing an expansionary fiscal policy, since increased government spending would have to be offset by increased taxes.

Explanation:

The Federal government balancing its budget every year means that it would need to match its revenue (taxes) to its spending.

Should they be forced to do this, they would have to cut spending so that they would be able to match taxes when they are low during recessions. This would not be helpful because government spending is needed to get out of a recession.

The government would also be unable to pursue an expansionary fiscal policy because any increase in spending would have to match an increase in taxes to fund it. The effect of the spending will not be as felt because the government would be simultaneously pumping money into the economy and taking it out at the same time.

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