Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP.If planned government expenditure is $300 billion,the structural
A)Deficit is zero.
B)Deficit is $100 billion.
C)Surplus is $100 billion.
D)Deficit is $500 billion.

Question

Quizplus · Accepted Answer

Tax revenue received by the federal government is always one-fifth of GDP, which is $200 billion in this case (1 trillion * 1/5 = 200 billion). However, planned government expenditure is $300 billion. Since expenditure exceeds revenue, there is a deficit of $100 billion.

Suppose the Economy Is at a Full-Employment GDP of $1