If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years:
A)fiscal policy is expansionary.
B)fiscal policy is contractionary.
C)fiscal policy is neutral.
D)the tax system is progressive.

Question

Quizplus · Accepted Answer

An increase in the cyclically adjusted budget deficit indicates an expansionary fiscal policy, as the government is increasing its spending or reducing its taxes to stimulate the economy. This is the case even if GDP remains constant.

If the Cyclically Adjusted Budget Deficit Increases from $200 Billion