If the full-employment budget surplus is positive but the actual budget surplus is negative, what can we conclude?

Question

Quizplus · Accepted Answer

The full-employment budget surplus (FEBS) is a hypothetical budget surplus that assumes the economy is operating at full employment. If the FEBS is positive but the actual budget surplus is negative, it suggests that the government's fiscal policy is too restrictive because it is generating less income than what is needed to balance the budget at full employment. This situation can lead to a decrease in government spending, and potentially lower economic growth. Therefore, D - that fiscal policy is too restrictive - is the best choice.

If the Full-Employment Budget Surplus Is Positive but the Actual