The key to assessing whether ﬁscal policy is expansionary or not is to observe the change in the
cyclically adjusted budget balance.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget balance takes into account the effects of the economic cycle on government revenues and expenditures, and thus provides a more accurate measure of the stance of fiscal policy. An increase in the cyclically adjusted budget balance indicates that fiscal policy is becoming more contractionary, while a decrease suggests that it is becoming more expansionary. Therefore, observing the change in the cyclically adjusted budget balance is indeed key to assessing the stance of fiscal policy.

The Key to Assessing Whether ﬁScal Policy Is Expansionary or Not