Suppose an economy is operating above Potential Real GDP and the government has a structural surplus equal to $150 billion.If the total government surplus is equal to $170 billion then the cyclical surplus is equal to:
A)$150 billion.
B)$320 billion.
C)$170 billion.
D)$20 billion.

Question

Quizplus · Accepted Answer

The total surplus can be broken down into two components: structural surplus and cyclical surplus.

Total surplus = Structural surplus + Cyclical surplus

Given:

Structural surplus = $150 billion 
Total surplus = $170 billion

Substituting these values in the above equation, we get:

$170 billion = $150 billion + Cyclical surplus

Solving for Cyclical surplus, we get:

Cyclical surplus = $170 billion - $150 billion = $20 billion

Therefore, the cyclical surplus is $20 billion.

Option D is correct.

Suppose an Economy Is Operating Above Potential Real GDP and the Government