question archive Refer to the accompanying table for Waxmania
Refer to the accompanying table for Waxmania
Subject:EconomicsPrice:2.88 Bought3
Refer to the accompanying table for Waxmania.
| Governmen Expenditures G | Tax Revenues T | Real GDP |
|---|---|---|
| 170 | 90 | 450 |
| 170 | 110 | 550 |
| 170 | 130 | 650 |
| 170 | 150 | 750 |
| 170 | 170 | 850 |
Instructions: Enter answer as the whole number
a. Waxmania is producing $550 of real GDP, whereas the potential real GDP or full-employment real GDP is $650. How large is its budget deficit? $ _____
How large is its cyclically adjusted budget deficit? $ _____
b. How large is the cyclically adjusted budget deficit as a percentage of potential real GDP?
Instructions: Round answer to 2 decimal places
Deficit = 10%
c. Is Waxmania's fiscal policy expansionary or is it contractionary? _____
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A. In the above-mentioned case study when Waxmania is producing $550 of real GDP, whereas the potential real GDP or full-employment real GDP is $650 then the budget deficit level is $60. Also, the cyclically adjusted budget deficit level is $40.
B. The cyclically adjusted deficit level ($60) is around 6.15% of the potential GDP level ($650).
C. As in the above-mentioned case study, the government expenditure level remains constant at $170 at all the levels of real GDP level even when the total revenue level to the government increases at a constant rate in related to the real GDP level. Therefore due to a fall in the share of the government expenditure level in the total GDP level of the economy, such a fiscal policy by the government can be regarded as a contractionary fiscal policy.
