Final answer:
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.