Question

Given the following parameters of an economy, how large is its budget surplus at the equilibrium level of income?

Equilibrium condition: Y = C + I + G

a) Budget surplus is zero.
b) Budget surplus is equal to government spending G.
c) Budget surplus is equal to savings S.
d) Budget surplus cannot be determined with the provided information

Answer 1

The budget surplus cannot be determined with the provided information.

Step-by-step explanation:

The answer to this question is d) Budget surplus cannot be determined with the provided information. The national savings and investment identity equation, S + (T-G) = I + (X-M), does not specify the value of budget surplus directly. It only accounts for the supply and demand of financial capital, savings, investment, and net exports. Without additional information or equations, we cannot determine the exact size of the budget surplus at the equilibrium level of income.