Question
The table below provides data for a hypothetical country.All values are in billions of dollars. Real GDP Government Expenditures (G) Net Taxes (T) 500 300
The table below provides data for a hypothetical country.All values are in billions of dollars.
Real GDP Government Expenditures (G) Net Taxes (T)
500 300 130
600 300 160
700 300 190
800 300 220
900 300 250
(a)Assume potential GDP is $700 billion.If this country is producing $600 billion of real GDP, how large is its budget deficit? Its structural deficit? It's cyclical deficit?Is the country's fiscal policy expansionary or is contractionary?Explain.
(b)If next year the cyclical deficit decreased, what does that tell you about the country's economic growth?
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