Question

Potential output: $8 trillion Actual output: $6 trillion Actual Deficit: $ 400 billion Tax Rate: 15% What is the structural deficit in 2010

Answer 1

The structural budget in 2010 is $100 billion

Step-by-step explanation:

Actual deficit = Government spending - Tax Revenue Collection

i.e Actual deficit = G-T

T = (Tax rate) (Actual output)

$400 billion = G - (0.15)($6000 billion)

$400 billion = G - $900 billion

G = $400 billion + $900 billion

G = $1300 billion

Thus, Government spending is $1300 billion

Structural deficit = G - T'

T' = (Tax rate)(Potential output)

T' = (0.15)(8000 billion)

T' = $1200 billion

Structural deficit = G - T'

Structural deficit = $1300 billion - $1200 billion

Structural deficit = $100 billion

Thus, the structural budget in 2010 is $100 billion