The cyclically-adjusted budget balance changes due to which policy changes:

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The question asks which policy changes cause the cyclically-adjusted budget balance to change. 
Option a: Discretionary fiscal policy changes. These are deliberate changes in spending or taxation decisions by the government. Because they alter the structural stance of fiscal policy, they will shift the cyclically-adjusted balance when such discretionary measures are implemented, even after removing cyclical effects. 
Option b: Automatic stabilisers. These are built-in fiscal mechanisms (like unemployment benefits or progressive tax systems) that respond automatically to the business cycle. While the cyclically-adjusted balance is designed to strip out pure cyclical effects, changes in the economy that trigger automatic stabilisers can still reflect in the underlying stance when those stabilisers are considered in policy or when comparing different policy configurations. In many formulations, automatic stabilisers are treated as part of policy effects on the balance in comparative assessments, so they can influence the cyclically-adjusted balance across scenarios. 
Option c: All of the options. Since both discretionary policy actions and automatic stabilisers can influence the policy stance captured by the cyclically-adjusted balance, including tax-rate changes (a subset of discretionary measures) as well, this option can be considered correct if we interpret “policy changes” broadly to include all above. 
Option d: Tax rate changes. Tax modifications are a classic discretionary policy tool. They directly affect the structural fiscal position and will change the cyclically-adjusted balance when implemented, even when adjusting for the cycle, as they alter revenue independent of cyclical conditions. 
Overall, each listed item represents a channel through which policy changes can alter the cyclically-adjusted budget balance, depending on the interpretation of automatic stabilisers within the broader policy-change context.

SESS0026_25-26 MCQ test - MOCK

The cyclically-adjusted budget balance changes due to which policy changes:

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SESS0026_25-26 MCQ test - MOCK

The cyclically-adjusted budget balance changes due to which policy changes:

View Explanation

Log in for full answers

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