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

At point A, the budget deficit is equal to $7.5 million when real GDP is $100 million. The structural budget deficit can be calculated as the vertical distance between the budget deficit function and the potential output line (Y*=$300 million). This distance is equal to approximately $7.5 million at point A, indicating that the structural budget deficit is also $7.5 million. Therefore, the answer is C.

The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical