*5 The figure shows revenues and outlays of the government of Dreamland. Potential GDP is a40 million.

 a What is the government’s budget balance if real GDP is a40 million? b Does Dreamland have a structural surplus or deficit if its real GDP is a40 million? What is its size? Explain why. c What is the government’s budget balance if real GDP is a30 million? d If Dreamland’s real GDP is a30 million, does Dreamland have a structural surplus or deficit? What is its size? Explain why. e If Dreamland’s real GDP is a50 million, does Dreamland have a structural surplus or deficit? What is its size? Explain why.

Transcribed Image Text:

Outlays, revenues, budget balance (millions of 2001 pounds) 120 100 28% 80 60 Revenues Outlays 0 20 30 40 50 60 Real GDP (millions of 2001 pounds)