Consider the government's budget balance. Suppose G = 300 and the government's net tax revenue is equal to 0.14Y. When Y = 2000, the government is running a budget .
A)deficit of - 20
B)surplus of 20
C)balance
D)surplus of 40
E)deficit of 20

Question

Quizplus · Accepted Answer

The formula for the government's budget balance is:

Budget Balance = G - T

where G is government expenditure and T is net tax revenue.

Substituting the given values, we get:

Budget Balance = 300 - 0.14Y

When Y = 2000,

Budget Balance = 300 - 0.14(2000) 
= 300 - 280 
= 20

Since the budget balance is positive, it means that the government is running a surplus. However, the question asks for the sign of the budget deficit/surplus, which is negative if there is a deficit and positive if there is a surplus. Therefore, the answer is:

Answer: E 
 The government is running a deficit of -20.

Consider the Government's Budget Balance