The government's structural budget deficit adjusts for

Question

Quizplus · Accepted Answer

The government's structural budget deficit adjusts for changes in spending or tax revenues caused by deviations in national income from potential output. It is a measure of the government's long-term fiscal position, assuming that the economy is at its potential level of output. This adjustment aims to remove the cyclical or temporary effects on government revenues and expenditures, allowing policymakers to assess the underlying fiscal stance of the government. Option A is incorrect because it only considers the primary budget balance, which does not account for interest payments on the government's debt. Option B is incorrect because it refers to a stabilization policy that is outside the scope of the structural deficit. Option D is incorrect because it conflates the nominal and real economy, whereas the structural deficit focuses on real changes in government finances. Option E is incorrect because it confuses the effect of interest rates on debt-service payments with the underlying fiscal position.

The Government's Structural Budget Deficit Adjusts for