An Economy Has an Output Gap of -2%,government Spending of 50

question 7

Multiple Choice

An economy has an output gap of -2%,government spending of 50% of GDP and a deficit of 4% of GDP,what is the structural deficit if the elasticity of revenue with respect to out is 0.75 whilst the elasticity of spending with respect to output is -0.25?

• A) 0
• B) 1
• C) 2
• D) 3
• E) 4

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