Question

What is the full-employment budget surplus, and why might it be a more useful measure than
the actual, or unadjusted, budget surplus? The text provides other names for this measure,
such as cyclically adjusted surplus and structural surplus. Why might we prefer to use these
other terms?

Answer 1

The full employment budget surplus is an estimate of the amount by which federal revenues would exceed federal expenditures if the economy were at full employment at current prices.

Unlike actual or adjusted budget surplus, which does not distinguish between budget influence on the economy and economy influence on the budget, full employment budget surplus is a more useful measure because it is unaffected by changes in economic activity, which can shrink or expand revenue depending on potential growth.