CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

Changes in the size of the federal deficit or surplus are often used to gauge whether fiscal policy is adding additional demand stimulus or imposing additional demand restraint. If we've noticed recently that the federal budget is shifting toward a deficit, we can conclude ______
A. that an expansionary fiscal policy is being implemented.
B. that an expansionary monetary policy is being implemented.
C. nothing about discretionary fiscal policy.
Explanation: Changes in the size of the deficit may arise from two different sources. They may reflect the state of the economy; during a recession, the budget will shift to a deficit state even if there is no change in fiscal policy. They may also reflect discretionary fiscal policy (expansionary or restrictive).

User Contributed Comments 3

User Comment
matzaala Dont necessarily assume that a Surplus or Deficit indicates an Expansion or Restriction in policy. This can simply be the result of the economy.
george2006 it may or may be not caused by the fiscal policy. Hence one can not make conclusion.
serboc you have to see what happened to Real GPD to make a conclusion
You need to log in first to add your comment.