•Cyclical Surplus/Deficit – effect of the state of the
economy
–The difference between actual deficit or surplus and the structural deficit
or surplus
–This is influenced by current levels of economic activity
–In “bad” times – (real) tax revenues fall, and entitlement spending rises
(both are keyed to the state of the economy), resulting in cyclical
deficits
–The opposite occurred during the end of the last recovery, when the economy
was stronger