Suppose the federal budget surplus for the year was $350 billion and the economy were in an economic expansion.If the economy had been at potential GDP,it is estimated that tax revenue would have been $140 billion lower and government spending on transfer payments would have been $50 billion higher.Using these estimates,the cyclically adjusted budget
A) deficit was $440 billion.
B) deficit was $260 billion.
C) surplus was $160 billion.
D) surplus was $540 billion.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget surplus is calculated by adjusting the actual budget surplus for the effects of the economic cycle. The actual surplus is $350 billion. If the economy were at potential GDP, tax revenue would be $140 billion lower, and government spending would be $50 billion higher. Therefore, the cyclically adjusted surplus is $350 billion - $140 billion - $50 billion = $160 billion.

Suppose the Federal Budget Surplus for the Year Was $350