Question

As the economy approaches a business cycle peak, which of the following is likely to be observed in the federal budget?

		An increased cyclical deficit
		An increased structural deficit
		A cyclical surplus
		An actual budget deficit that is greater than the structural deficit

If appropriations bills are not passed by the start of the fiscal year, Congress can keep the government in operation by passing a continuing resolution.

True

False

Answer 1

1.Option C is the answer.

• As the economy approaches a business cycle peak, a cyclical surplus is observed.
• Business cycle has four stages. They are expansion, peak, contraction and trough.
• At the peak of a business cycle, employment is in the highest level. The cyclic deficit caused in the previous business cycle stage is overcome at this peak stage by having a cyclical surplus.

2. The answer is TRUE.

• The Appropriations bills are generally passed by the beginning of the fiscal year. It is for enabling the continued government spending.
• When the appropriations bill is not passed by the start of the fiscal year, then a special appropriations bill known as continuing resolution can be passed for enabling the continued spending for a shorter period of time.