Question of the Day: Day Fourteen



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.