Chapter 30, Problem 3MCQ

To determine

The correct option regarding the cyclically adjusted budget deficit balance.

Explanation of Solution

It is a projection of the budgetary balance if actual GDP and potential production were precisely equal. It accounts for the additional tax income that the administration would get and the additional transfers that would be avoided if recessionary gaps were closed, as well as the income that would be lost and the additional transfers that would be made if inflationary gaps were closed.

Thus, from the above we can conclude that the correct option is C.