If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that
ﬁscal policy has turned more contractionary.

Question

Quizplus · Accepted Answer

A decrease in the cyclically adjusted budget deficit as a percentage of GDP indicates that fiscal policy has become more contractionary, as it implies a reduction in government spending or an increase in taxes relative to the size of the economy, aiming to slow down economic activity.

If the Cyclically Adjusted Budget Deﬁcit Goes from 2 Percent