What Is the Difference Between a Structural Surplus and a Cyclical
What is the difference between a structural surplus and a cyclical surplus?
Why is there an inverse relationship between real GDP and the budget deficit?
The table below shows the relationship between the deficit and real GDP. Draw a diagram depicting this relationship. Assume potential GDP is $6,900 billion. (A)What is the structural deficit? (B)If real GDP is $7,050 billion, what is the cyclical deficit? (C)If real GDP is $6,750 billion, what is the cyclical deficit? (D)Show what will happen to the relationship between the deficit and real GDP if Medicare and federal prison incarceration costs increase without any corresponding increase in taxes or reduction in other programs.
Answer the questions below: (A)Suppose real GDP is less than potential GDP. Use a diagram with inflation on the vertical axis and percentage deviation of real GDP from potential GDP on the horizontal axis to show the short-run and long-run effects of a tax cut on the inflation rate and real GDP. (B)Explain the tradeoff that has been made between unemployment and inflation. (C)Suppose that, by the time the tax cut was in place, real GDP was again equal to potential GDP. Trace the short-run and long-run results on the same diagram.