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.