Which of the following statements is correct?
A) The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account.
B) The cyclically adjusted budget is less likely to show a deﬁcit than is the actual budget.
C) The cyclically adjusted budget and the actual budget will show the same size deﬁcit or surplus in any given ﬁscal year.
D) The cyclically adjusted budget is more likely to show a deﬁcit than is the actual budget.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget is a measure of the government's budget balance that takes into account the state of the economy. It adjusts for the impact of the business cycle on tax receipts and government spending. The actual budget, on the other hand, measures the government's budget balance without any adjustment for the business cycle. As a result, the cyclically adjusted budget is less likely to show a deficit than the actual budget, as it takes into account the fact that tax revenues tend to rise and government spending tends to fall during economic expansions, while the reverse is true during recessions.

Which of the Following Statements Is Correct