PLEASE ANSWER C&D ONLY . THE REST HAS ALREADY BEEN ANSWERED. Say the marginal tax rate...

PLEASE ANSWER C&D ONLY . THE REST HAS ALREADY BEEN ANSWERED.

Say the marginal tax rate is 20 percent and that government expenditures do not change with output. Say also that the economy is at potential output and that the deficit is $450 billion.

a. What is the size of the cyclical deficit?

Answer = $0

  b. What is the size of the structural deficit?

Answer = $450 billion.

c. How would your answers to a and b change if the deficit was still $450 billion but output was $200 billion below potential?

    Instructions: Round your answers to the nearest whole dollar amount. Leave no cell blank. You must enter "0" for the answer to grade correctly.

    Cyclical deficit is $ __________billion.

    Structural deficit is $ ________ billion.

d. How would your answers to a and b change if the deficit was still $450 billion but output was $350 billion above potential?

    Instructions: Round your answers to the nearest whole dollar amount. Leave no cell blank. You must enter "0" for the answer to grade correctly.

    Cyclical surplus is _________ $ billion.

    Structural deficit is ___________$ billion.

Solutions

Expert Solution

Answer:

Marginal tax rate is 20%

Actual deficit is $450 billion

The economy is operating $200 billion below its potential. This implies that the actual output in the economy is smaller than the potential output by $200 billion or potential output is greater than the actual by $200 billion

Thus Potential output- Actual output = $200

Cyclical deficit = Tax rate * (Potential output- Actual output)

= 20% * 200

= $40 billion

Therefore Cyclical deficit is $40 billion

Structural deficit = Actual deficit – Cyclical deficit

= 450 – 40 = $410 billion

Cyclical deficit is $ 40 billion.

Structural deficit is $ 410 billion.

Marginal tax rate is 20%

Actual deficit is $450 billion

The economy is operating $350 billion above its potential. This implies that the actual output in the economy is greater than the potential output by $350 billion or potential output is smaller than the actual by $350 billion

Thus Potential output- Actual output = - $350 billion

Cyclical surplus = Tax rate * (Potential output- Actual output)

= 20% * (-350)

= - $70 billion

Therefore Cyclical surplus is -$70 billion

Structural deficit = Actual deficit – Cyclical surplus

= 450 – (-70) = 450 + 70 = $520 billion

Cyclical surplus is -$70 billion.

Structural deficit is $520 billion.

Rahul Sunny answered 1 week ago

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