The data below provides the Actual and Structural Budget Deficits,as a percentage of real GDP,for Canada between 1999 and 2010.Note that a negative value in the table indicates a budget surplus.
TABLE 31-2
-Refer to Table 31-2.Based on the data in the table,over which of the following intervals was fiscal policy expansionary?

Question

The data below provides the Actual and Structural Budget Deficits,as a percentage of real GDP,for Canada between 1999 and 2010.Note that a negative value in the table indicates a budget surplus.
  TABLE 31-2
-Refer to Table 31-2.Based on the data in the table,over which of the following intervals was fiscal policy expansionary?

Quizplus · Accepted Answer

Expansionary fiscal policy occurs when the government increases spending and/or decreases taxes in order to stimulate economic growth. One way to determine whether fiscal policy is expansionary is to look at whether the actual deficit (or surplus) is increasing or decreasing relative to the structural deficit (or surplus). If the actual deficit is increasing relative to the structural deficit, it suggests that the government is engaging in expansionary fiscal policy by running larger deficits.

In this case, we can see that the structural budget deficit is fairly stable between 1999 and 2010, with values ranging from -0.7% to -2.9% of GDP. However, the actual deficit is much more volatile, and generally moves in the opposite direction to the structural deficit. From 1999 to 2003, the actual deficit increases from a surplus of 1.5% to a deficit of 1.1% of GDP, while the structural deficit falls from -2.0% to -1.5% of GDP. This suggests that fiscal policy was expansionary during this period, as the government was running larger deficits than would be expected based on the structural deficit alone. Therefore, the correct answer is B.

The Data Below Provides the Actual and Structural Budget Deficits,as