Suppose a small economy has two income tax rates: 15% for all income up to $50,000 and 30% for any income earned above $50,000. Suppose that the economy has a Government Budget for this year (year 1) of $58,500, and a total of five individuals earning the following income: Amy $20,000, Betty $40,000, Charlie $60,000, Dimitry $80,000, Evelyn $100,000. In chapter 5 we saw that GDP can be calculated in two ways, via the expenditure approach or the income approach, and that when the income approach is used, there must be adjustments made to National Income, specifically adding the Consumption of Fixed Capital and a Statistical Discrepancy. For the sake of simplicity, let's imagine that National Income is equal to GDP, in other words the Fixed Capital and the Statistical Discrepancy are equal to zero.

1.Amy = 15,000*15% = 2250, Betty= 30,000*15% = 4500, Charlie= 45,000*15%=6750, Dimitry= (50,000*15%)+(10000*30%)=10,500, Evelyn=(50000*15%)+(25000*30%)=15000, 2250+4500+6750+10500+15000=39,000

8. Suppose that the Government Budget remained the same in year 2. Is the economy experiencing a balanced budget, a budget surplus, or a budget deficit, in year 2? Accompany your response with the corresponding dollar amount.