The cyclically adjusted budget deficit:
A)adjusts the deficit for inflation.
B)estimates what the deficit would be if the economy were operating at the natural level of output.
C)accounts for assets as well as liabilities.
D)measures the impact of fiscal policy on the lifetime incomes of individuals of different ages.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget deficit estimates what the deficit would be if the economy were operating at the natural level of output, taking into account any cyclical deviations from this level. This allows for a more accurate assessment of the government's fiscal position, as it removes the effects of short-term economic fluctuations. A is incorrect because adjusting for inflation is not the primary purpose of the measure. C and D are also incorrect, as the cyclically adjusted budget deficit does not account for assets or liabilities, nor does it measure the lifetime income impacts of fiscal policy on individuals.

The Cyclically Adjusted Budget Deficit