Why is it more likely if actual gdp growth is less than potential gdp growth that a government will run a fiscal deficit?
Because the economy hasn’t reached its full potential they will continue to spend/borrow to increase economic output until actual GDP reaches potential GDP. That’s why you’ll notice questions on “When do you expect bond prices to increase” have answers like when actual GDP is less than potential GDP; this is saying economy still needs to expand. How does an economy expand? Expansionary monetary policy (lower interest rates) or Expansionary Fiscal policy (increased government spending). How does a government spend money? It borrows. Potential GDP is what the governments want to achieve… if they aren’t there yet, they will expand to get there.
Ah OK. Thanks!