In Year 1 Suppose the Economy Is at Potential GDP

question 5

Essay

In Year 1 suppose the economy is at potential GDP and that the federal budget deficit equals $100 billion.In Year 2 the federal budget deficit rises to $150 billion,but the cyclically adjusted budget deficit falls to $75 billion.How can the actual budget deficit rise and the cyclically adjusted budget deficit fall?

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Definitions:

Marginal Utility Per Dollar

The additional satisfaction or benefit gained from consuming an additional unit of a good or service, relative to the cost in dollars.

Fixed Income

Refers to investment types that provide regular, predetermined returns, such as bonds or fixed deposits.

Utility Maximization

The principle that individuals or firms aim to achieve the highest satisfaction or benefit from their resources and choices under given constraints.

Marginal Utility

This concept refers to the additional satisfaction or utility that a consumer gains from consuming one more unit of a good or service.