State true or false and justify your answer:

An increase in the cyclical deficits will automatically increase the standardized budget deficit.

The statement is false.

An increase in the cyclical deficits will not automatically increase the standardized budget deficit.

A deficit indicates a high level of expenses, higher than the available income. A cyclical deficit is the kind of deficit that occurs due to unemployment. The cyclical deficits do not affect the standardized budget deficit because its effects are short-lived and are not likely to affect real income within a short period. On the other hand, a standardized budget deficit calculates and is affected mostly by the long-term factors and factors that affect real-time income in the long-run. These factors include changes in capital gains taxes, changes in government interest rates caused by inflation changes, among others. Also, the standardized budget deficit excludes cyclical changes and fluctuations; hence, the cyclical deficit's effects do not affect the standardized budget deficit.