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Homework answers / question archive / When economies are in recessions, they tend to experience _____ and when they are in expansions, they are more likely to run _____
When economies are in recessions, they tend to experience _____ and when they are in expansions, they are more likely to run _____. For this reason, it may be useful to separate out the effects of discretionary fiscal policy using the _____.
a) Deficits; surpluses; cyclically balanced budget,
b) Surpluses; deficits; cyclically balanced budget,
c) Deficits; debts; cyclically balanced budget,
d) Inflation; deflation; monetarily balanced budget,
e) Disinflation; deflation; monetarily balanced budget.
A is the correct answer. In a recession, the economy is more likely to run a deficit due to the contraction in GDP. In an expansion, it is more likely to run a surplus. A cyclically balanced budget does not balance every year but is in balance over a full business cycle and recognizes that deficits are followed by surpluses and vice versa.
