When current government expenditures exceed current tax revenues and the economy is achieving full employment,
A) the cyclically adjusted budget has neither a deﬁcit nor a surplus.
B) the cyclically adjusted budget has a deﬁcit.
C) ﬁscal policy is contractionary.
D) the cyclically adjusted budget has a surplus.

Question

Quizplus · Accepted Answer

When current government expenditures exceed current tax revenues and the economy is achieving full employment, it means that the government has a budget deficit. This is because the government is spending more than it is earning through taxes. The cyclically adjusted budget refers to the government's budget balance after adjusting for the effects of the business cycle. In this situation, the cyclically adjusted budget would still show a deficit because the government is spending more than it is earning, even when accounting for the effects of the business cycle. Fiscal policy would be considered expansionary in this scenario, as the government is increasing spending to stimulate the economy.

When Current Government Expenditures Exceed Current Tax Revenues and the Economy