The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

A. Fiscal policy was more expansionary

B. Fiscal policy was more contractionary

C. The Federal government is decreasing taxes

D. The Federal government is increasing spending.

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11 March, 11:07

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

A. Fiscal policy was more expansionary

B. Fiscal policy was more contractionary

C. The Federal government is decreasing taxes

D. The Federal government is increasing spending.

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Answers (1)

Know the Answer?

Naomi Howe · Answer 1

The correct answer is (B)

Explanation:

Contractionary fiscal policy is applied by governments to reduce fiscal deficit. It is a type of financial approach that includes diminishing government expenditures and increasing taxes. The main idea is to increase revenue and decrease expenditures. Contractionary fiscal policy has led to a decrease cyclically-adjusted deficit as a percentage of GDP from 2% to 1%.