The US government purposely changed the economy's budget from a surplus of 2 percent of real GDP...

Question:

The US government purposely changed the economy's budget from a surplus of 2 percent of real GDP in 2000 to a deficit of 3.5 percent of real GDP in 2003. The government is engaging in a(n):

Select one:

a. expansionary fiscal policy.

b. contractionary fiscal policy.

c. non-discretionary fiscal policy.

d. neutral fiscal policy.

Gross Domestic Product:

Gross Domestic Product (GDP) refers to the gap between the total economic output of a country and the total economic expenditures of a country. Where a country is producing more than it is consuming, it is considered to have a positive GDP; while where a country is consuming more than it is producing, it is considered to have a negative GDP.

Answer and Explanation:

a. expansionary fiscal policy.

A shift from surplus to deficit is most likely linked to expansionary fiscal policy. Under expansionary fiscal policy, a government may increase its spending and/or lower taxes to drive economic growth. Both of these actions, however, are likely to impact the nature of the country's GDP, with expansionary policy often leading to decreased or negative GDP. The thinking is that a deficit of GDP will be offset by the economic growth in future quarters.


Learn more about this topic:

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Overview of the Gross Domestic Product

from CLEP Social Sciences and History: Study Guide & Test Prep

Chapter 59 / Lesson 2
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