Assume we have an economy where the Price Level is constant. We can describe that economy with the following equations (below).
|C = 0.8(DI) + 400||C = Consumption Expenditure, DI = Disposable Income|
|I = 600||I = Investment Expenditure|
|G = 3400||G = Government Expenditure|
|X = 500||X = Expenditure on Exports|
|M = 500||M = Expenditure on Imports|
|T = 1000 + 0.2Y||T = Tax Revenue, Y = real GDP|
|DI = Y - T|
|Yp = 12000||Yp = Potential GDP|
a. Does this economy have a budget deficit, budget surplus, or is the budget balanced?
b. Calculate the structural budget deficit for this economy.