Imagine the federal government has a national debt of $10.2 trillion. congress's budget for the coming year includes a spending projection of $4.2 billion. tax revenue projects $3.8 billion. which fiscal policy would congress have to adopt to maintain spending levels without increasing the debt? cut public programs increase taxes lower discount rates reduce open-market operations

Congress would have to adopt a fiscal policy of increasing the taxes in order to maintain its spending levels without raising its debt.

Further explanation:

Contractionary Fiscal Policy: The government uses the tools of fiscal policy in order to change the level of aggregate demand in an economy. The tools of fiscal policy are government spending and taxes. The government raises the level of taxes in order to raise the amount required for the higher spending level.  

Justification for correct and incorrect option:

Cut public programs: This option is incorrect.

If the government wishes to maintain the spending at the same level, it would not reduce its spending on various public programs. Thus, a reduction in government spending by cutting public programs would not be adopted by Congress.  

Increase taxes: This option is correct.

Congress would adopt a policy of raising the taxes if it wants to maintain spending levels without raising its debt. Raising the level of taxes would enable Congress to spend $4.2 billion as projected without raising the level of debt.  

Lower discount rates: This option is incorrect.

Changes in the discount rates in an economy are not categorized as fiscal policies. They are categorized as monetary policies as the discount rate is a monetary policy tool. Thus, a reduction in the discount rate is not a fiscal policy that Congress would adopt.  

Reduce open-market operations: This option is incorrect.

The open-market operations are used by the central bank in its monetary policy. Changing the levels of open-market operations is not a fiscal policy. That’s why; Congress would not reduce open market-operations as a part of its fiscal policy.  

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Answer details:

Grade: High School

Subject: Economics

Chapter: Fiscal policy

Keywords: the federal government, has a national debt, budget, for the coming year, includes a spending projection, tax revenue projects, which fiscal policy, have to adopt, maintain spending levels, without increasing the debt, cut public programs, increase taxes, lower discount rates, reduce open market operations.  

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