If the full-employment budget shows a deficit of about $100 billion 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

Take a shot. Be sure to do a little research first. (read your text)

Artur Artur answered
14 years ago

The correct answer is B.

Explain Bot Explain Bot answered
8 months ago

To answer this question, we need to understand the concepts of the full-employment budget, actual budget, and their respective deficits.

The full-employment budget is an estimate of what the budget deficit or surplus would be if the economy were operating at its full employment level. It assumes that all resources in the economy are fully utilized, including labor. In this scenario, any budget deficit or surplus is considered to be purely a result of the cyclical component of the economy.

On the other hand, the actual budget represents the real deficit or surplus that the government is experiencing in reality, taking into account the current state of the economy, including unemployment.

Given that the full-employment budget shows a deficit of $100 billion and the actual budget shows a deficit of $150 billion, it implies that the actual deficit is larger than the full-employment deficit. This indicates that the economy is operating below its full employment level, resulting in a larger deficit than it would be under ideal conditions.

Based on this information, we can conclude that there is a cyclical deficit, which is represented by the difference between the actual and full-employment deficits. Option b, a cyclical deficit, is therefore the correct answer.

To recap, by comparing the full-employment budget deficit with the actual budget deficit, we can identify the presence of a cyclical deficit and infer the state of the economy in relation to its full employment level.