Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

Question

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A cyclical deficit is related to the economic cycle, so an increase in equilibrium income (indicating economic growth) can reduce or eliminate it by increasing tax revenues and reducing unemployment-related expenditures. However, a structural deficit is caused by fundamental imbalances in the budget that exist regardless of the economic cycle, such as chronic overspending or systemic tax shortfalls, and thus cannot be eliminated solely through increases in equilibrium income.

Economists Believe That an Increase in Equilibrium Income Can Eliminate