What is a cyclically balanced-budget fiscal policy?
A)A policy of balancing the budget each fiscal year.
B)A policy of using the budget to balance the economy each fiscal year.
C)A policy of balancing the budget over the life of the business cycle.
D)A policy of using the budget to balance the economy over the life of the business cycle.

Question

Quizplus · Accepted Answer

A cyclically balanced-budget fiscal policy aims to balance the budget over the business cycle, taking into account the fluctuations in the economy. During a recession, the government may run a budget deficit to stimulate economic growth, while during an economic boom, it may run a budget surplus to cool down inflationary pressures. This approach ensures that the budget is not always in deficit or surplus and helps to reduce the volatility of the economy.

What Is a Cyclically Balanced-Budget Fiscal Policy