The figure on the right shows a pair of budget deficit functions for a country (G+iD-T), denotes the initial budget deficit function. Assume that Y, is the potential output but the economy is currently at Y₂ A more expansionary fiscal policy that moves the economy to Y, would result in a structural deficit increase measured by OA. the change from 0 to D1. OB. the change from 0 to D2 OC. the change from 0 to D3 OD. the change from D1 to D2 OE. the change from D1 to D3 in billions of dollars) Deficit/Surp 500 400- 300- 200- ID3 D2 D1 **** 100- 0- -100- -200- 300+ The Budget Deficit Function 300 600 900 1200 (G+ID-T₁ (G+iD-To Real GDP (in billions of dollars)

The figure on the right shows a pair of budget deficit functions for a country (G+iD-T), denotes the initial budget deficit function. Assume that Y, is the potential output but the economy is currently at Y₂ A more expansionary fiscal policy that moves the economy to Y, would result in a structural deficit increase measured by OA. the change from 0 to D1. OB. the change from 0 to D2 OC. the change from 0 to D3 OD. the change from D1 to D2 OE. the change from D1 to D3 in billions of dollars) Deficit/Surp 500 400- 300- 200- ID3 D2 D1 **** 100- 0- -100- -200- 300+ The Budget Deficit Function 300 600 900 1200 (G+ID-T₁ (G+iD-To Real GDP (in billions of dollars)

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.B: Algebraic Treatment Of Taxes And Fiscal Policy

Problem 3TY

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