  We investigate the wavelength-dependent intensity and reverberation
properties of the UV-optical diffuse continuum emission expected from broad
emission line gas. The locally optimally emitting clouds picture is adopted,
with the cloud distribution functions in gas density and distance from the
ionizing source determined by a fit to the mean UV emission line spectrum from
the 1993 HST campaign of NGC5548 in our previous paper. The model Balmer
continuum's strength and variability characteristics are in agreement with
those derived from the observations of NGC5548. A key prediction is a
wavelength dependent lag across the UV-optical spectrum which can broadly mimic
the signature from X-ray reprocessing in an accretion disk, calling into
question the discovery claims of the latter in NGC7469. The influence of the
diffuse continuum on the optical continuum may result in a small yet
significant underestimation of the characteristic sizes of the regions emitting
the optical emission lines. Its contribution can also alter the inferred
spectral energy distribution of the UV-optical continuum, even well outside the
spectral region near the well-known Balmer jump. The reverberation of the
diffuse continuum emitted by the BLR may account for perhaps one-third of the
observed effect that the 1350-5100 Angstrom continuum becomes bluer as it
becomes brighter (even after accounting for non-variable optical starlight).
And as in other models of the broad emission line gas, a significant yet
unobserved Lyman jump is predicted. (abridged)
