The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output.
TABLE 25-3
-Refer to Table 25-3.What is the level of combined budget surpluses of all levels of government in this economy?

Question

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output.
  TABLE 25-3
-Refer to Table 25-3.What is the level of combined budget surpluses of all levels of government in this economy?

Quizplus · Accepted Answer

The combined budget deficit is equal to taxes minus government purchases minus transfer payments, which is equal to $500 - $800 - $100 = -$400 at all levels of government. Therefore, the combined budget surplus is equal to -$400*(-0.5) = $200 for the federal government and -$400*0.3 = -$120 for state and local governments, for a total of $200 - $120 = -$80. Since this value represents a deficit rather than a surplus, the answer is D (-$200), which is the closest answer choice.

The Table Below Shows Aggregate Values for a Hypothetical Economy