The accompanying diagram shows two budget deficit functions for a hypothetical economy. Suppose the economy is at point A, the budget deficit function is Bo, and the level of potential output is $500 million. The structural budget deficit would be OA. $2 million. B. $7 million. C. - $5 million. OD. $0. - 8- Budget Surplus/Deficit (millions of dollars) & ÷ ÷ B C 125 250 375 500 625 750 875 В1 Real GDP (millions of dollars) Bo
The accompanying diagram shows two budget deficit functions for a hypothetical economy. Suppose the economy is at point A, the budget deficit function is Bo, and the level of potential output is $500 million. The structural budget deficit would be OA. $2 million. B. $7 million. C. - $5 million. OD. $0. - 8- Budget Surplus/Deficit (millions of dollars) & ÷ ÷ B C 125 250 375 500 625 750 875 В1 Real GDP (millions of dollars) Bo
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The accompanying diagram shows two budget deficit functions for a hypothetical
economy.
Suppose the economy is at point A, the budget deficit function is Bo, and the level
of potential output is $500 million. The structural budget deficit would be
A. $2 million.
B. $7 million.
C. - $5 million.
D. $0.
-C
8-
A
6 5 4
Budget Surplus/Deficit (millions of dollars)
B
0
O
C
125
250
375 500 625 750 875
B₁
Real GDP (millions of dollars)
Bo
Transcribed Image Text:Consider the following data about government debt and deficit in a given year:
― real interest rate on government bonds = 2%
- growth rate of real GDP = 2%
- current debt-to-GDP ratio = 28%
- primary budget deficit as a percentage of GDP = 6%
Over this one-year period the debt-to-GDP ratio will have
A. fallen by 6 percentage points.
B. risen by 0.6 percentage points.
C. remained unchanged.
D. risen by 6 percentage points.
E. fallen by 0.6 percentage points.
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