If the economy is operating well below potential output,the cyclically adjusted budget balance deficit is _____ the actual budget balance.
A) smaller than
B) larger than
C) unrelated to
D) the same as

Question

Quizplus · Accepted Answer

When the economy is operating below potential output, the actual budget balance is affected by cyclical factors such as lower tax revenues and higher unemployment benefits, making the actual deficit larger than the cyclically adjusted budget balance, which removes these cyclical effects.

If the Economy Is Operating Well Below Potential Output,the Cyclically