During a boom, the deficit of the government will reduce automatically due to _____________.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. increase in tax revenue.
During a boom (a period of strong economic growth), incomes and profits rise. As a result:
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People and businesses earn more, leading to higher tax collections (like income tax, corporate tax, GST, etc.).
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Government spending on welfare (like subsidies or unemployment benefits) may also decrease because more people are employed.
This automatic increase in revenue and potential reduction in spending leads to a lower fiscal deficit, even without any policy change. This concept is part of what economists call automatic stabilizers in fiscal policy.