Figure 13-10 shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in the United States from 1970 to 2014. Assuming that potential output was unchanged, use this figure to determine which of the years from 1990 to 2013 the government used expansionary fiscal policy and in which years it used contractionary fiscal policy.

Figure 13-10

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The cyclically adjusted budget deficit is an estimate of what the budget deficit would be if the economy was at potential output. It fluctuates less than the actual budget deficit because years of large budget deficits also tend to be years when the economy has a large recessionary gap. Sources: Congressional Budget Office; Bureau of Economic Analysis. Actual budget deficit, cyclically adjusted budget deficit (percent of GDP) 10% 8 6 4 2 0 -2 -4 1964 1969 1 1974 Cyclically adjusted budget deficit 1 1979 1984 1989 Actual budget deficit 1994 1999 2004 2009 2014