Policy rules tend to have the economy running a budget deficit during a recession and a budget surplus during an expansion.

Question

Quizplus · Accepted Answer

This is known as the discretionary fiscal policy, where the government increases spending and cuts taxes during a recession to stimulate demand and decreases spending and raises taxes during an expansion to restrain demand and control inflation. This leads to a budget deficit during a recession and a budget surplus during an expansion.

Policy Rules Tend to Have the Economy Running a Budget