Unit 3.3, Chapter 12 #7

7.
The full-employment budget measures the country's deficit or surplus if the economy reached the full-employment level of GDP with current Fiscal Policy policies. It is used to determine whether a government is engaging in expansionary or contractionary policy. A deflect or surplus in the actual budget when the full employment budget is balanced is a result of the economy not running at full employment.
If full employment was at GDP3, then there would be a full employment budget surplus. Even though the actual budget has no deficit at GDP2, the fiscal policy is contractionary. The government should cut taxes or increase spendings. The g line should be raised or the T line should be lowered so they intersect at GDP3.