When will the difference between the actual deficit and the structural deficit be the smallest?
A)In a major recession
B)Below the natural rate of unemployment
C)At full employment
D)In an inflationary gap

Question

Quizplus · Accepted Answer

The structural deficit is the portion of the deficit that remains even if the economy is at full employment. Therefore, when the economy is at full employment, the actual deficit and the structural deficit should be the closest in size, making the difference between them the smallest. Option A is incorrect because a major recession would likely widen the deficit due to decreased government revenue and increased spending. Option B is incorrect because being below the natural rate of unemployment would indicate that the economy is not at full capacity, which would make the difference between the actual deficit and structural deficit wider. Option D is incorrect because an inflationary gap indicates that the economy is above full capacity, with higher inflation and output, which would increase the actual deficit.

When Will the Difference Between the Actual Deficit and the Structural