In examining the national income accounts of the closed economy of Nepotocracy, you see that it in 2007 it had taxes of $100 billion, transfers of $40 billion, and government purchases of goods and services of $80 billion. You also notice that in 2006 it had private saving of $50 billion and investment of $70 billion. In which year did Nepotocracy have a budget deficit of $20 billion?
A)2007 and 2006
B)2007 but not 2006
C)2006 but not 2007
D)neither 2006 nor 2007

Question

Quizplus · Accepted Answer

Budget deficit is calculated as the difference between total government spending (taxes + transfers + government purchases) and government revenue (taxes). In 2007, the government revenue was $100 billion, and the total spending was $120 billion ($40 billion transfers + $80 billion government purchases), resulting in a budget deficit of $20 billion. However, in 2006, the government revenue (taxes) and spending (private savings + investment) are not given, so we cannot determine the budget deficit for that year.

In Examining the National Income Accounts of the Closed Economy