$$\begin{array} { | c | c | c | }
\hline \text { Year } & \begin{array} { c }
\text { Actual Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} & \begin{array} { c }
\text { Cyclically-Adjusted Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} \
\hline 1 & 0 & 0 \
\hline 2 & - 3 & 0 \
\hline 3 & - 5 & - 2 \
\hline 4 & - 2 & - 2 \
\hline 5 & + 2 & + 1 \
\hline
\end{array}$$ Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 2 and 3 best re?ect
A) demand-pull in?ation.
B) an expansionary ?scal policy.
C) a tax increase.
D) a contractionary ?scal policy.

Question

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Actual Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} & \begin{array} { c } 
\text { Cyclically-Adjusted Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} \
\hline 1 & 0 & 0 \
\hline 2 & - 3 & 0 \
\hline 3 & - 5 & - 2 \
\hline 4 & - 2 & - 2 \
\hline 5 & + 2 & + 1 \
\hline
\end{array}$$ Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 2 and 3 best re?ect
A) demand-pull in?ation.
B) an expansionary ?scal policy.
C) a tax increase.
D) a contractionary ?scal policy.

Quizplus · Accepted Answer

The change from Year 2 to Year 3 shows an increase in the actual budget deficit from -3% to -5% of GDP, while the cyclically-adjusted budget deficit increases from 0% to -2%. This suggests that the government increased spending or decreased taxes (or both) beyond what economic cycles would predict, indicating an expansionary fiscal policy aimed at stimulating the economy.

Refer to the Data for a ?Ctional Economy