Suppose an economy is operating below Potential Real GDP and the government has a structural deficit equal to $100 billion.If the total government deficit is equal to $150 billion then the cyclical deficit is equal to:
A)$150 billion.
B)$250 billion.
C)$50 billion.
D)$100 billion.

Question

Quizplus · Accepted Answer

The total government deficit is divided into two components: the structural deficit and the cyclical deficit.
Total government deficit = Structural deficit + Cyclical deficit
$150 billion = $100 billion (structural deficit) + Cyclical deficit
Cyclical deficit = $150 billion - $100 billion = $50 billion.

Suppose an Economy Is Operating Below Potential Real GDP and the Government