Which situation best illustrates a structural budget deficit?
Correct answer: B. A deficit that remains even when the economy produces at potential output
- A. A deficit caused only by a temporary recession
- B. A deficit that remains even when the economy produces at potential output
- C. A deficit caused by emergency spending after a natural disaster
- D. A deficit that disappears when unemployment benefits rise
Explanation
A structural deficit exists because government revenues and planned expenditures are mismatched even at normal or potential output. A deficit caused by a recession or temporary emergency is more closely associated with cyclical or temporary factors.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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