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Economic Definition of full-employment budget. Defined.

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Term full-employment budget Definition: A hypothetical federal budget that would exist if the economy were at full employment. Differences between the actual federal budget and the full-employment budget result from taxes and expenditures that depend on gross domestic product. The full-employment budget indicates whether any of the federal government's fiscal policy is over- or under-stimulating the economy given the current position in the business cycle. During a recession the federal deficit should be just enough to generate a balanced budget at full employment. The same result is desirable if we're running a surplus with inflation. If the full-employment budget is NOT balanced, however, then we're doing too much or too little by way of fiscal policy and changes are in order.

 

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