Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit
A) at all levels of GDP.
B) at any level of GDP above $400.
C) at any level of GDP below $400.
D) only when GDP is stable.

Question

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit
A) at all levels of GDP. 
B) at any level of GDP above $400. 
C) at any level of GDP below $400. 
D) only when GDP is stable.

Quizplus · Accepted Answer

At all levels of GDP below $400, the government expenditures exceed tax revenues, resulting in a budget deficit. At GDP levels above $400, tax revenues exceed government expenditures, resulting in a budget surplus. Therefore, the budget will entail a deficit at any level of GDP below $400.

Refer to the Diagram, in Which T Is Tax Revenues