If government increases the size of its cyclically adjusted surplus, we can
A) assume that government is causing interest rates to rise.
B) not determine government's impact on the economy without also knowing the status of the actual budget.
C) assume that government is having a contractionary effect on the economy.
D) assume that government is having an expansionary effect on the economy.

Question

Quizplus · Accepted Answer

Increasing the size of the cyclically adjusted surplus indicates that the government is collecting more revenue than it is spending, leading to a contractionary effect on the economy. This is because the government is reducing the amount of money in circulation, which can lead to higher unemployment and slower economic growth.

If Government Increases the Size of Its Cyclically Adjusted Surplus