Question: The cyclically adjusted budget deficit is the budget deficit corrected for the effects of the business cycle. In other words, it is the budget deficit

The cyclically adjusted budget deficit is the budget deficit corrected for the effects of the business cycle. In other words, it is the budget deficit that the government would be running if unemployment were at the natural rate. (It is also called the full-employment budget deficit.) Some economists have proposed the rule that the cyclically adjusted budget deficit always be balanced. Compare this proposal to a strict balanced-budget rule. Which is preferable? What problems do you see with the rule requiring a balanced cyclically adjusted budget?

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