Utilize the following information to answer the following question: Potential Output: 15 trillion Actual Output: 14.5...
Utilize the following information to answer the following question:
Potential Output: 15 trillion
Actual Output: 14.5 trillion
Tax Rate: 20%
Actual Deficit: 500 billion
Question:
What is the cyclical deficit?
200 billion
500 billion
150 billion
100 billion
Homework Answers
Answer
0.4 trillion or 400 billion
Tax revenue = 20%x14.5 trillion =2.9 trillion
we know
Actual Deficit = Government spending - Tax revenue
0.5 Trillion = Government spending - 2.9 trillion
or, Government spending = 3.4 Trillion
Tax revenue at full employment = 20% x 15 trillion = 3 trillion
Structural deficit = Government spending - tax revenue at full employment
= 3.4-3 = 0.4 trillion or 400 billion
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