Suppose the federal budget deficit for the year was $500 billion and the economy were in a recession.If the economy had been at potential GDP,it is estimated that tax revenue would have been $350 billion higher and government spending on transfer payments would have been $200 billion lower.Using these estimates,the cyclically adjusted budget

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Quizplus · Accepted Answer

The cyclically adjusted budget is calculated by adjusting the actual budget deficit for the effects of the economic cycle. If tax revenue would have been $350 billion higher and spending $200 billion lower, the deficit would be reduced by $550 billion. Thus, the cyclically adjusted budget would be a surplus of $50 billion ($500 billion deficit - $550 billion adjustment).

Suppose the Federal Budget Deficit for the Year Was $500