Question

In Year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more:

A. Proportional
B. Progressive
C. Contractionary
D. Expansionary

Answer 1

The fiscal policy from Year 1 to Year 2 became more expansionary.

Step-by-step explanation:

The change in the actual budget deficit and the cyclically-adjusted deficit from Year 1 to Year 2 can provide insight into the nature of fiscal policy during that period.

Comparing the figures:

- Year 1: Actual deficit = $200 billion, Cyclically-adjusted deficit = $150 billion

- Year 2: Actual deficit = $225 billion, Cyclically-adjusted deficit = $175 billion

Observing the change, both the actual and cyclically-adjusted deficits increased from Year 1 to Year 2 ($25 billion increase in actual deficit and $25 billion increase in cyclically-adjusted deficit).

This indicates that fiscal policy from Year 1 to Year 2 became more:

D. Expansionary

The increase in both the actual and cyclically-adjusted deficits suggests a more expansionary fiscal policy. Expansionary fiscal policy involves increased government spending, reduced taxes, or both, intended to stimulate economic growth or counteract a downturn.