Q. In Yr 1, the full-employment budget demonstrated a deficit of about $100 billion also the actual budget Demonstrated a deficit of $150 billion one yr. In Yr 2, the full employment budget demonstrated a deficit of about $125 billion also the actual budget Demonstrated a deficit of $150 billion. Based on these data, illustrate what can be concluded about the direction of fiscal policy?

Fiscal approach was expansionary because the full-employment budget deficit increased from one yr to the next. The actual deficit is composed of the full-employment portion also the cyclical portion. The full-employment portion of the actual budget deficit rose from $100 to $150 billion. The cyclical portion is Concluded by taking the actual deficit also subtracting the cyclical portion from it. The cyclical portion of the actual deficit fell from $50 billion to $25 billion. The actual budget deficit did not change but it does not provide a good indication of the direction of fiscal policy. Only the full-employment budget tells the direction of fiscal policy.