Final answer:
The full-employment budget surplus is a measure of what the government's budget balance would be if the economy was at full employment. This cyclically adjusted or structural surplus is useful because it subtracts the effects of automatic stabilizers, providing a clearer view of the government's underlying fiscal position.
Step-by-step explanation:
The full-employment budget surplus, also known as the cyclically adjusted or structural surplus, is a measure that estimates what the government's budget balance would be if the economy were operating at full employment, i.e., at potential GDP. This measure is considered more useful than the actual, or unadjusted, budget surplus because it accounts for the fluctuations in tax revenues and government spending that occur naturally over the business cycle due to automatic stabilizers. During recessions, for instance, automatic stabilizers like unemployment benefits increase government spending while tax revenues decline as incomes fall, widening the budget deficit. The full-employment surplus or deficit subtracts out these cyclical effects to give a clearer picture of the government's underlying fiscal position.
Automatic stabilizers are economic policies and programs, such as unemployment insurance and progressive taxes, that automatically increase spending or decrease taxes when economic output declines, and vice versa when output rises. These mechanisms help to moderate the business cycle, but they also obscure the underlying fiscal position of the government. By looking at the standardized employment deficit or surplus, it becomes possible to analyze the government's fiscal policy stance without the noise of cyclical factors.