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

Answer 1

Answer: it can be concluded that fiscal policy from year 1 to year 2 became more expansionary.

Explanation:

When the fiscal policy becomes expansionary the government will decrease the taxes and increase its spending in order to reduce the recessionary situation in the country. In the above scenario budget deficit means the expenditure is more than the revenue.

A cyclical budget deficit means the deficit which occurs due to decrease in tax rates and increase in government spending. Increasing the taxes and government spending would both offset the balance in the economy.