The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Question

Quizplus · Accepted Answer

The full-employment deficit is a measure of the deficit or surplus that would exist if the economy were operating at full employment. If the full-employment deficit decreases, it indicates that discretionary fiscal policy is becoming more contractionary, while an increase in the full-employment deficit suggests that discretionary fiscal policy is becoming more expansionary. Therefore, observing changes in the full-employment deficit is a key way to assess the direction of discretionary fiscal policy.

The Key to Assessing the Direction of Discretionary Fiscal Policy