In January 2017, the Congressional Budget Office
(CBO) noted that its “estimate of the deficit for 2017 has
decreased since August 2016.” The CBO also noted that its
“economic forecast … underlies its budget projections.”
a. Why would the CBO’s forecast of future levels of GDP
and employment matter for its forecasts of future federal budget deficits?
b. If the federal budget deficit turns out to be smaller
than expected, it is likely that economic growth was
higher or lower than expected? Briefly explain.
Source: Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027, January 2017, p.2.