An economy is recovering from a recession, with real GDP growing at a rate faster than its long-run trend rate. Assuming the government keeps tax rates and discretionary spending plans unchanged, what is the most likely effect on the government's cyclical and structural budget balances?
The cyclical deficit will decrease, and the structural deficit will remain unchanged.
The structural deficit will decrease, and the cyclical deficit will remain unchanged.
Both the cyclical deficit and the structural deficit will decrease.
The cyclical deficit will increase, and the structural deficit will decrease.
