If the cyclically adjusted budget shows a deﬁcit of zero and the actual budget shows a deﬁcit of about $150 billion, it can be concluded that there is
A) built-in stability.
B) a cyclical deﬁcit.
C) an expansionary ﬁscal policy.
D) a contractionary ﬁscal policy.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget shows what the budget balance would be if the economy was at a normal level of economic activity. If this is showing a deficit of zero, it means that the government is not using fiscal policy to stimulate the economy or to slow it down. However, the actual budget deficit is $150 billion, indicating that there is a difference between the current state of the economy and the normal level of economic activity. This difference is known as a cyclical deficit, which suggests that the current deficit is primarily due to the weak economic conditions rather than discretionary policy choices.

If the Cyclically Adjusted Budget Shows a Deﬁcit of Zero