The cyclically adjusted budget balance is an estimate of:
A)the contractionary fiscal policy needed to close an inflationary gap.
B)the tax increase needed to compensate for larger government transfers so that the budget remains balanced.
C)the expansionary fiscal policy needed to close a recessionary gap.
D)what the budget balance would be if real GDP were exactly equal to potential output.

Question

Quizplus · Accepted Answer

The cyclically adjusted budget balance is an estimate of what the budget balance would be if real GDP were exactly equal to potential output, regardless of the current state of the business cycle. This helps to gauge the long-term sustainability of government spending and taxation policies. Therefore, choice D is the correct answer.

The Cyclically Adjusted Budget Balance Is an Estimate Of