When will the difference between the actual deficit and the structural deficit be the largest?
A)In an inflationary gap
B)At full employment
C)At potential real GDP
D)In a recession

Question

Quizplus · Accepted Answer

The difference between the actual deficit and the structural deficit will be the largest in a recession. This is because during a recession, government revenues tend to decrease due to lower income and corporate earnings, while spending on social services and unemployment benefits increases, leading to a higher actual deficit. The structural deficit, which is the deficit adjusted for the business cycle, does not increase as much because it is based on what the deficit would be under normal economic conditions (e.g., at full employment or potential GDP).

When Will the Difference Between the Actual Deficit and the Structural