Answer to Question #125448 in Macroeconomics for Ankit

Question

What is the full-employment budget surplus and why might it be a more useful measure than the actual or unadjusted budget surplus?

Answer 1

Full employment budget surplus is an estimate of the amount, which federal revenues would exceed federal expenditure if the economy were operating at full employment level of activity at prevailing price level.

Unlike actual or adjusted budget surplus which fails to distinguish budget influence on the economy and economy influence on the budget, full employment budget surplus is a more useful measure since it is not affected by changes in the economic activity, that will either shrink or expand the revenue based on the potential growth.

References

Deepashree,. & Agawarl, Vanita. (2007). Macroeconomics. The McGraw-Hill Companies.