Thank you for visiting Suppose potential GDP is 22 trillion If the economy produces at potential then the government budget deficit is 1 5 trillion If actual GDP is. This page is designed to guide you through key points and clear explanations related to the topic at hand. We aim to make your learning experience smooth, insightful, and informative. Dive in and discover the answers you're looking for!
Answer :
The cyclically adjusted budget deficit is calculated to be $1.5 trillion.
The cyclically adjusted budget deficit, considering potential GDP of $22 trillion, is $1.5 trillion. This reflects the budget deficit if the economy were operating at full employment.
To determine the cyclically adjusted budget deficit when potential GDP is $22 trillion and actual GDP is $20 trillion, we start with the given information. At potential GDP, the government's budget deficit is $1.5 trillion. When actual GDP is lower at $20 trillion, the budget deficit is $1.25 trillion.
To find the cyclically adjusted budget deficit, we adjust the actual budget deficit to account for the difference between actual and potential output. Since potential GDP is the level of full employment, we calculate the deficit as if the economy were at potential GDP:
- At potential GDP, the deficit is $1.5 trillion.
Hence, the cyclically adjusted budget deficit is calculated to be $1.5 trillion, reflecting what the deficit would be if the economy were operating at full employment.
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