Question

Which of the following describes the budget balance as a percent of GDP in 2019?

a. The Federal government's budget balance as a percent of GDP was higher than predicted by the trendline (that is, the deficit is smaller), so fiscal policy was more expansionary than usual.
b. The Federal government's budget balance as a percent of GDP was lower than predicted by the trendline (that is, the deficit is bigger) ), so fiscal policy was more expansionary than usual.
c. The Federal government's budget balance as a percent of GDP was higher than predicted by the trendline (that is, the deficit is smaller), so fiscal policy was less expansionary than usual.
d. The Federal government's budget balance as a percent of GDP was lower than predicted by the trendline (that is, the deficit is bigger) ), so fiscal policy was less expansionary than usual.
e. The Federal government's budget balance as a percent of GDP was close to the prediction by the trendline (within 0.5%), so fiscal policy was just as expansionary as usual.

Answer 1

The answer is option B) The Federal government's budget balance as a percent of GDP was lower than predicted by the trendline (that is, the deficit is bigger) ), so fiscal policy was more expansionary than usual.

Step-by-step explanation:

The annual budget deficit increased from $585 billion (3.2% GDP) in 2016 to $984 billion (4.7% GDP) in 2019.

Contrary to fiscal predictions, The U.S. fiscal deficit increased by $1 trillion in 2019, the first time it has passed that level in a calendar year since 2012.

A situation like this necessitates an expansionary fiscal policy.

Expansionary Fiscal Policy is a tool used by government to increase disposable income by reducing tax and increasing government expenditure.

This will lead to an increase in aggregate demand and contributing to drawing down of budget surpluses.