In 2009, output was beneath potential. At the same time, the budget deficit hit a record high of over $1 trillion. If President Obama were to have pursued budget cuts, given the state of the economy, these spending cuts would have:
A)been procyclical.
B)been countercyclical.
C)increased interest rates.
D)crowded out investment.

Question

Quizplus · Accepted Answer

Budget cuts during a period when output is below potential are considered procyclical because they would further reduce demand in the economy, exacerbating the downturn instead of mitigating it.

In 2009, Output Was Beneath Potential