Answer to Question #227381 in Macroeconomics for Maham

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 term ?

Answer 1

Full employment budget surplus is the estimation of the amount, whereby government revenues will exceed their expenditure if the economy is operating at full employment level of activity at prevailing market price.

The full employment surplus is a good concept as compared to other concepts as it is not substantially affected by any deviations or changes in the economy.

actual or adjusted budget surplus concept does not make a distinction between the influence of the budget on the economy and the influence of the economy on budget making . full employment budget surplus is a more useful measure since it is not affected by changes in the economic activity on the basis of any potential growth.