Which of the following most clearly indicates that fiscal policy is becoming more restrictive?
A) An increase in the budget deficit relative to GDP
B) A reduction in the budget deficit relative to GDP
C) An increase in government expenditures as a share of GDP
D) A reduction in tax revenues as a share of GDP

Question

Quizplus · Accepted Answer

A reduction in the budget deficit relative to GDP indicates that fiscal policy is becoming more restrictive, as it means that the government is spending less and/or collecting more revenue. Option A would indicate the opposite, while options C and D do not necessarily reflect a change in the overall restrictiveness of fiscal policy.

Which of the Following Most Clearly Indicates That Fiscal Policy