Chapter 13, Problem 22P

To determine

Why a budget deficit naturally tends to arise at a real GDP level such as Y₂

Concept introduction:

Automatic Fiscal Stabilizers: Automatic fiscal stabilizers are features included in economic policies that prevent violent fluctuations in the GDP of an economy resulting from booms and recessions. These features are triggered automatically without any intervention by the government.

Budget Deficit: Budget deficit refers to the excess of federal government expenditure over its receipts during a year.

Budget Surplus: Budget surplus refers to the excess of federal government receipts over its expenditure during a year.

Balanced Budget: Federal government budget is balanced when its receipts and expenditure are equal during a year.