Assume the Economy Is Experiencing an Inflationary Gap and the Government

Multiple Choice

Assume the economy is experiencing an inflationary gap and the government has a budget surplus.Which of the following is a correct example of counter-cyclical fiscal policy with the corresponding effect on the budget?

A) Government spending increases causing a smaller budget surplus.
B) Government spending increases causing a larger budget surplus.
C) Tax rates decrease causing a smaller budget surplus.
D) Government spending decreases causing a larger budget surplus.
E) Transfer payments and tax rates both decrease.