When current government expenditures exceed current tax revenues and the economy is achieving full employment,

Question

Multiple Choice
the cyclically-adjusted budget has neither a deficit nor a surplus.
the cyclically-adjusted budget has a deficit.
fiscal policy is contractionary.
the cyclically-adjusted budget has a surplus.

Answer 1

When current government expenditures exceed current tax revenues and the economy is achieving full employment, the correct answer is:

the cyclically-adjusted budget has a deficit.

This is because the cyclically-adjusted budget accounts for the budget balance that would exist even if the economy were at full employment, reflecting structural fiscal positions. If expenditures exceed revenues under full employment conditions, it indicates a structural deficit.