Assume That the Actual Deficit Is $150 Billion with the Economy

question 12

Multiple Choice

Assume that the actual deficit is $150 billion with the economy well below potential output and that the level of economic activity rose to its potential level while tax revenues increased by $50 billion and transfer payments fell by $20 billion.Then,what is the structural deficit?

• A)$180 billion
• B)$120 billion
• C)$220 billion
• D)$80 billion
• E)$100 billion

---

Definitions:

Net Operating Income

The total profit of a business after operating expenses have been deducted, but before taxes and interest.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold, excluding fixed manufacturing overhead.

Contribution Margin

The gap between sales income and variable expenses, showing the extent to which income aids in offsetting fixed expenses and creating earnings.

Cost-Volume-Profit

An analysis tool used to determine how changes in costs and volume affect a company's operating income and net income.