The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function .Real GDP (Y)is $100 million.If the level of potential output (Y*)were $400 million,the structural budget deficit would be

Question

The diagram below shows two budget deficit functions for a hypothetical economy.  FIGURE 31-2 Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function  .Real GDP (Y)is $100 million.If the level of potential output (Y*)were $400 million,the structural budget deficit would be

Quizplus · Accepted Answer

At point A, the actual budget deficit is $10 million, which is the vertical distance between point A and the vertical axis. The potential output is $400 million, so the structural budget deficit is the horizontal distance between point A and the vertical line at Y*=$400 million, which is $4 million. Therefore, the answer is B.

The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical