Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

Question

Quizplus · Accepted Answer

When equilibrium GDP falls below potential GDP, it typically results in a budget deficit because government transfer payments (like unemployment benefits) increase while tax receipts decrease due to lower income and corporate earnings. This situation does not affect the cyclically adjusted budget, which is designed to be balanced at potential GDP, reflecting choices A, B, and C as correct. Additionally, government receipts from social security premiums would also likely fall due to lower employment levels, making D correct as well. Therefore, all of the statements are correct, leading to E as the correct choice.

Suppose That the Federal Budget Is Balanced When GDP Is