Suppose the budget deficit for a hypothetical economy fell from $107 billion in 1996 to $40 billion in 1997.
(A)If the economy was undergoing an economic expansion for 1997,explain how this might account for at least part of the decrease in the budget deficit.

(B)Suppose real GDP equaled potential GDP in 1997 and was below potential GDP in 1996.Sketch a diagram that shows the responsiveness of the deficit to real GDP and also shows the structural deficit.

Question

Suppose the budget deficit for a hypothetical economy fell from $107 billion in 1996 to $40 billion in 1997.
(A)If the economy was undergoing an economic expansion for 1997,explain how this might account for at least part of the decrease in the budget deficit.

(B)Suppose real GDP equaled potential GDP in 1997 and was below potential GDP in 1996.Sketch a diagram that shows the responsiveness of the deficit to real GDP and also shows the structural deficit.

Quizplus · Accepted Answer

The Answer of Suppose the budget deficit for a hypothetical economy fell from $107 billion in 1996 to $40 billion in 1997.
(A)If the economy was undergoing an economic expansion for 1997,explain how this might account for at least part of the decrease in the budget deficit.

(B)Suppose real GDP equaled potential GDP in 1997 and was below potential GDP in 1996.Sketch a diagram that shows the responsiveness of the deficit to real GDP and also shows the structural deficit.

Suppose the Budget Deficit for a Hypothetical Economy Fell from $107