Suppose the economy is in a recessionary gap.If government expenditures are currently $3.5 trillion and tax revenues are currently $2.9 trillion,the (total)budget deficit is _____________.Assume that economists estimate that if the economy were operating at full employment,government expenditures would be $3.2 trillion and tax revenues would be $3.1 trillion.The structural deficit must be_________________ and the cyclical deficit must be _______________.
A) $3.5 trillion; $2.9 trillion; $600 billion
B) $600 billion; $300 billion; $300 billion
C) $600 billion; $100 billion; $500 billion
D) $600 billion; $500 billion; $100 billion
E) $500 billion; $100 billion; $400 billion

Question

Quizplus · Accepted Answer

The budget deficit is the difference between government expenditures and tax revenues. Therefore, the budget deficit is:

$3.5 trillion - $2.9 trillion = $600 billion

The structural deficit is the budget deficit that would exist if the economy were operating at full employment. Therefore, the structural deficit is:

$3.2 trillion - $3.1 trillion = $100 billion

The cyclical deficit is the difference between the actual budget deficit and the structural deficit. Therefore, the cyclical deficit is:

$600 billion - $100 billion = $500 billion

Suppose the Economy Is in a Recessionary Gap