The Diagram Below Shows Two Budget Deficit Functions for a Hypothetical

question 115

Multiple Choice

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function .Real GDP (Y) is $100 million.If the level of potential output (Y*) were $300 million,how much of the actual budget deficit is due to the underlying structure of fiscal policy and is therefore independent of the current level of GDP?

• A)$4 million
• B)$6.5 million
• C)$7.5 million
• D)$14 million
• E)Insufficient information to know

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