If you are told that the government had an actual budget deficit of $50 billion, then you would:
A)know that fiscal policy was expansionary.
B)know that fiscal policy was contractionary.
C)know that fiscal policy was producing a cyclical deficit.
D)not be able to determine the direction of fiscal policy from the information given.

Question

Quizplus · Accepted Answer

Knowing the size of the government's budget deficit alone does not provide information on the direction of fiscal policy. Fiscal policy can be expansionary or contractionary depending on the government's spending and taxation decisions relative to the size of the deficit. Therefore, option D is the best answer.

If You Are Told That the Government Had an Actual