If the actual budget deficit is $260 billion, the economy is operating $600 billion above its potential, and the marginal tax rate is 17 percent, what are the structural deficit or surplus and the cyclical deficit or surplus?

Question

Business

Chaim Dominguez

16 November, 14:45

If the actual budget deficit is $260 billion, the economy is operating $600 billion above its potential, and the marginal tax rate is 17 percent, what are the structural deficit or surplus and the cyclical deficit or surplus?

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Answers (1)

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Tasha · Answer 1

structural deficit = $362 billion cyclical surplus = $102 billion

Explanation:

In order to calculate the structural deficit we have to solve the following equation:

structural deficit = actual deficit + (economy's operating level above potential x marginal tax rate) = $260 billion + ($600 billion x 17%) = $260 billion + $102 billion = $362 billion

The cyclical surplus is calculated by multiplying the economy's operating level above potential times marginal tax rate = $600 billion x 17% = $102 billion