Some of the components of the state budget depend on the level of output Y. The following components of the state budget are given: tax revenues Tt=1000+0.1Yt, transfers TRt=800- 0.05Yt, government spending Gt=1800, and interest payments IP= 100. Potential output in this economy is equal to Y,=10000. A) Calculate the overall budget deficit and the structural deficit in period 1, if output equals respectively: - Y,=12000 - Y{ = 10000 - Y"=8000 How does the relationship between overall deficit and structural deficit depend on the phase of the business cycle? B) Calculate cyclical deficit for all these three cases.

Some of the components of the state budget depend on the level of output Y. The following components of the state budget are given: tax revenues Tt=1000+0.1Yt, transfers TRt=800- 0.05Yt, government spending Gt=1800, and interest payments IP= 100. Potential output in this economy is equal to Y,=10000. A) Calculate the overall budget deficit and the structural deficit in period 1, if output equals respectively: - Y,=12000 - Y{ = 10000 - Y"=8000 How does the relationship between overall deficit and structural deficit depend on the phase of the business cycle? B) Calculate cyclical deficit for all these three cases.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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