If the government is running a cyclically adjusted budget deficit,________ fiscal policy is ________ because aggregate expenditure is increasing.
A) discretionary; contractionary
B) discretionary; expansionary
C) expansionary; ineffective
D) contractionary; appropriate

Question

Quizplus · Accepted Answer

A cyclically adjusted budget deficit occurs when the economy is in a downturn, and the government is spending more than it is receiving in revenue to stimulate growth. In this situation, discretionary fiscal policy that further increases government spending or reduces taxes is considered expansionary because it increases aggregate expenditure and helps to boost economic growth. Therefore, the best answer is B.

If the Government Is Running a Cyclically Adjusted Budget Deficit,________