Macroeconomics

get deficit

(sometimes called the full-employment budget deficit). The cyclically

adjusted deficit is based on estimates of what government spending and tax rev-

enue would be if the economy were operating at its natural level of output and

employment. The cyclically adjusted deficit is a useful measure because it reflects

policy changes but not the current stage of the business cycle.

Summing Up

Economists differ in the importance they place on these measurement problems.

Some believe that the problems are so severe that the budget deficit as normally

measured is almost meaningless. Most take these measurement problems serious-

ly but still view the measured budget deficit as a useful indicator of fiscal policy.

The undisputed lesson is that to evaluate fully what fiscal policy is doing,

economists and policymakers must look at more than just the measured bud-

get deficit. And, in fact, they do. The budget documents prepared annually by

the Office of Management and Budget contain much detailed information

about the government’s finances, including data on capital expenditures and

credit programs.

No economic statistic is perfect. Whenever we see a number reported in the

media, we need to know what it is measuring and what it is leaving out. This is

especially true for data on government debt and budget deficits.