When will the difference between the actual deficit and the structural deficit be the smallest?
A)in a major recession
B)in an inflationary gap
C)at full employment

Question

When will the difference between the actual deficit and the structural deficit be the smallest?
A)in a major recession 
B)in an inflationary gap
C)at full employment

Quizplus · Accepted Answer

The structural deficit refers to the deficit that would exist even when the economy is at full employment. Therefore, when the economy is at full employment, there are fewer cyclical factors affecting the deficit, and the difference between the actual deficit and the structural deficit is likely to be smallest. In a major recession, the actual deficit is likely to be much larger than the structural deficit due to decreased economic activity and tax revenues. In an inflationary gap, the actual deficit may be larger due to increased government spending to encourage economic growth, and the structural deficit may also increase if the government does not adjust its spending and revenue policies.

When Will the Difference Between the Actual Deficit and the Structural