The figure on the right shows a pair of budget deficit functions for a country (G+iD-T), denotes the initial budget deficit function. Assume that Y, is the potential output but the economy is currently at Y₂ A more expansionary fiscal policy that moves the economy to Y, would result in a structural deficit increase measured by OA. the change from 0 to D1. OB. the change from 0 to D2 OC. the change from 0 to D3 OD. the change from D1 to D2 OE. the change from D1 to D3 in billions of dollars) Deficit/Surp 500 400- 300- 200- ID3 D2 D1 **** 100- 0- -100- -200- 300+ The Budget Deficit Function 300 600 900 1200 (G+ID-T₁ (G+iD-To Real GDP (in billions of dollars)

The figure on the right shows a pair of budget deficit functions for a country (G+iD-T), denotes the initial budget deficit function. Assume that Y, is the potential output but the economy is currently at Y₂ A more expansionary fiscal policy that moves the economy to Y, would result in a structural deficit increase measured by OA. the change from 0 to D1. OB. the change from 0 to D2 OC. the change from 0 to D3 OD. the change from D1 to D2 OE. the change from D1 to D3 in billions of dollars) Deficit/Surp 500 400- 300- 200- ID3 D2 D1 **** 100- 0- -100- -200- 300+ The Budget Deficit Function 300 600 900 1200 (G+ID-T₁ (G+iD-To Real GDP (in billions of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The figure on the right shows a pair of budget deficit functions for a country (G+iD-T), denotes the
initial budget deficit function. Assume that Y₁ is the potential output but the economy is currently at Y₂ A
more expansionary fiscal policy that moves the economy to Y₁ would result in a structural deficit increase
measured by
OA. the change from 0 to D1.
OB. the change from 0 to D2
OC. the change from 0 to D3
D. the change from D1 to D2
E. the change from D1 to D3.
Deficit/Surplus (in billions of dollars)
500-
400-
300-
200-
100-
0-
-100-
-200-
300
D3
D2
D1
The Budget Deficit Function
300
Y₂Y₁
600
900
1200
(G+iD-T₁
(G+iD-To
Real GDP (in billions of dollars)

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