If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion,then the economy
A)must be at potential real GDP.
B)must be below potential real GDP.
C)must be above potential real GDP.
D)could be below or above potential real GDP.

Question

Quizplus · Accepted Answer

A cyclically adjusted budget deficit smaller than the actual deficit indicates that the economy is below potential real GDP, as the actual deficit is larger due to lower tax revenues and higher government spending associated with a recessionary gap.

If the Federal Budget Has an Actual Budget Deficit of $100