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15 October, 18:38

Why is the cyclical adjusted budget balnce a better measure of long run sustainability of government policies than the actual budget balance?

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  1. 15 October, 19:09
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    Because cyclical adjusted Budget balance would give the estimation of what the balance would be if real GDP were exactly equal to potential output.

    In the long-run GDP would move closer to the amount in potential output. So using Cyclical adjusted Budget would give better projection to maintain long-term sustainability.
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