Suppose the actual budget deficit increases when the economy falls into a recession. This is an indication that
A) monetary policy was not used during the recession.
B) fiscal policy was not used during the recession.
C) monetary policy was used during the recession.
D) fiscal policy was used during the recession.

Question

Quizplus · Accepted Answer

Fiscal policy refers to the government's use of spending and taxation to stabilize the economy. If the actual budget deficit increases during a recession, it suggests that the government was using expansionary fiscal policy (increasing government spending and/or cutting taxes) to stimulate the economy. Therefore, option D is the best choice. Option B can be ruled out since it directly contradicts the evidence presented in the question. Option A and C are not necessarily true or false based on the given information.

Suppose the Actual Budget Deficit Increases When the Economy Falls