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22 September, 19:38

In Year 1, the actual budget deficit was $200 billion and the standardized deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the standardized deficit was $175 billion. GDP was $1000 billion in Year 1 and $1005 billion in Year 2. It can be concluded that fiscal policy from Year 1 to Year 2 was: 
A. Proportional


B. Inflationary


C. Contractionary


D. Expansionary

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Answers (1)
  1. 22 September, 23:19
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    Answer: Option (D) is correct.

    Explanation:

    From the information given in the question, it was observed that fiscal policy in year 2 is expansionary by comparing it with the fiscal policy in year 1.

    The budget deficit in year 1 is $200 billion and in year 2 is $225 billion, so there is an increase in the budget deficit from year 1 to year 2. This means that there is an implementation of expansionary policy either by increasing government spending or decreasing taxes.

    On the other hand, standardized deficit also increases from year 1 to year 2, which is also an indication of expansionary fiscal policy.
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