The cyclical deficit is the portion of the deficit
A) the result of discretionary federal spending.
B) that is the result of nondiscretionary federal spending.
C) created by fluctuations in real GDP.
D) that would exist if the economy were at potential real GDP.

Question

Quizplus · Accepted Answer

The cyclical deficit is created by fluctuations in real GDP. It is the portion of the deficit that exists due to a downturn in the economy, which reduces tax revenue and increases spending on items such as unemployment benefits. It is often contrasted with the structural deficit, which is the portion of the deficit that would exist if the economy were at potential real GDP.

The Cyclical Deficit Is the Portion of the Deficit