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.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 51P: A government starts off with a total debt of $3.5 billion. In year one, the government runs a...

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