Question #46

The Australian Treasury equates the NAIRU with full employment and uses this to calibrate their structural deficit estimates. Accordingly, these deficit estimates will be

• biased downwards thus indicating, at any point in the business cycle, that the government fiscal stance is less expansionary than it actually is.
• biased upwards thus indicating, at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.
• difficult to assess because the Treasury forward estimates are subject to forecasting inaccuracy.

Answer #465

Answer: biased upwards thus indicating, at any point in the business cycle, that the government fiscal stance is more expansionary than it actually is.

Explanation

Please read Structural deficits - the great con job! or post a comment for further discussion.