Question

If the actual budget deficit is $180 billion, the economy is operating $400 billion above its potential, and the marginal tax rate is 13 percent, what are the structural deficit or surplus and the cyclical deficit or surplus

Answer 1

Answer:

Structural Deficit $232 billion

Cyclical Deficit $52 billion

Explanation:

Calculation for the Structual deficit and the cyclical deficit

STRUCTURAL DEFICIT

Using this formula

Structural Deficit =Actual budget +(Economy Operating amount×Marginal tax rate)

Let plug in the formula

Structural Deficit =$180 billion +($400 billion ×0.13)

Structural Deficit =$180 billion +$52 billion

Structural Deficit =$232 billion

CYCLICAL DEFICT

Using this formula

Cyclical Deficit = Economy Operating amount *Marginal tax rate

Let plug in the formula

Cyclical Deficit=$400 billion ×0.13

Cyclical Deficit=$52 billion

Therefore Structural Deficit is $232 billion while Cyclical Deficit is $52 billion.