If the economy is operating well below potential output, the cyclically adjusted budget balance deficit is _____ than the actual budget balance.
A)smaller than
B)larger than
C)unrelated to
D)the same as

Question

Quizplus · Accepted Answer

The cyclically adjusted budget balance accounts for the effects of the economic cycle, removing temporary fluctuations. When the economy is below potential, the actual deficit is larger due to lower tax revenues and higher automatic stabilizer spending, making the cyclically adjusted deficit smaller.

If the Economy Is Operating Well Below Potential Output, the Cyclically