Question

If the structural deficit is $750 billion and the cyclical deficit is $150 billion, it follows that the __________ is __________ billion.

a. public debt; $900
b. total budget deficit; $600
c. total budget deficit; $900
d. net public debt; $600
e. none of the above

Answer 1

The correct answer is C, Total Budget Deficit; $900.

Budget Deficit comprises of two deficits. One is Structural Deficit and the other is Cyclical Deficit. The cyclical deficit happens when there is an imbalance in the business cycle. Tax receipts are going down and spending are going up, then cyclical deficit increases. Similarly, structural deficit occurs when there is an imbalance in the government receipts and expenditures. So collectively they are called the Total Budget Deficit.

Answer 2

It follows that total budget deficit is $900 billion since the total budget deficit is the sum of the structural deficit and the cyclical deficit. A cyclical deficit exists because of the business cycle while there is a structural deficit when the government’s spending is more than it receives in taxes, regardless of the economic performance. Their total would be the budget deficit.