When the economy is at full employment:
A)one cannot generalize in comparing the actual and the full-employment budgets.
B)the full-employment budget will show a surplus and the actual budget will show a deficit.
C)the actual budget will show a surplus and the full-employment budget will show a deficit.
D)the actual and the full-employment budgets will be equal.

Question

Quizplus · Accepted Answer

When the economy is at full employment, the actual and the full-employment budgets will be equal because there is no cyclical unemployment or output gap. Therefore, the government will collect its full potential revenue and spend its full potential expenditure. Thus, the actual budget will be equal to the full-employment budget.

When the Economy Is at Full Employment