Question

Why is the cyclically adjusted budget balance a better measure of the long-run sustainability of government policies than the actual budget balance

Answer 1

because In the long run, real GDP tends to potential output.

Step-by-step explanation:

Since actual GDP continues to increase economic output in the longer term, the seasonally adjusted annual budget balance is a better predictor of public policies ' long-term sustainability. ... Economic GDP dropped in recessions.

This means that incomes for consumers, business investment and profits for producers also fall.

The cyclically adjusted expenditure balance plays an important role in the EU budgetary framework, which still provides a better picture of fiscal policy focus.