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    Question

    In case of increase in unemployment, fiscal deficit

    will? 
    A Increase Correct Answer Incorrect Answer
    B Decrease Correct Answer Incorrect Answer
    C Not get affected Correct Answer Incorrect Answer
    D May increase or decrease Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Recessions bring about an increase in deficits for two reasons; first government receipts go down because unemployed people do not pay taxes, second, government spending increases as benefits increase for unemployed people.  Thus increased expenses and decreased income of the government will lead to increase of fiscal deficit. 

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