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 B0.Real GDP (Y)is $100 million.If the level of potential output (Y*)were $300 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 B0.Real GDP (Y)is $100 million.If the level of potential output (Y*)were $300 million,the structural budget deficit would be

Quizplus · Accepted Answer

The structural budget deficit is defined as the deficit that would exist even at potential output. At potential output, the economy is on the vertical axis, so the distance between the horizontal axis and the budget deficit function B0 at Y*= $300 million represents the structural budget deficit, which is approximately $14 million. Therefore, the correct answer is B) $14 million.

The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical