If an economy operates below potential income, the actual deficit is:

Question

Quizplus · Accepted Answer

When an economy operates below its potential income, the actual deficit is larger than the structural deficit. This is because lower economic activity leads to lower tax revenues and potentially higher government spending (for example, on unemployment benefits), both of which can increase the actual deficit beyond the structural deficit, which is the deficit adjusted for the business cycle.

If an Economy Operates Below Potential Income, the Actual Deficit