The economy is in a recession, the recessionary gap is large, and there is a budget deficit.
Question:
a. Do we know whether the budget deficit is structural or cyclical? Explain your answer.
b. Do we know whether automatic fiscal policy is increasing or decreasing the output gap? Explain your answer.
c. If a discretionary increase in government expenditure occurs, what happens to the structural deficit or surplus? Explain.
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a We know that at least some of the budget deficit in a recession is a cyclical deficit as transfer ...View the full answer
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Related Book For
Macroeconomics Canada in the Global Environment
ISBN: 978-0321778109
8th edition
Authors: Michael Parkin, Robin Bade
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