Consider the diagram below which measures the budget balance, BB (i.e. taxes minus government expenditure) on the vertical axis and the level of income in the economy, Y, on the horizontal axis. BB 0 BB BB¹ Assuming the normal level of income is Y* and that the current fiscal policy is represented by the dashed line (BB¹) and the current level of income is Y¹, then the diagram suggests that O the segment B - C is a measure of the current structural budget balance. the segment Y* - B is a measure of the current cyclical budget balance O the segment A - C is an indicator of the current cyclical budget balance the segment A - Y¹ indicates a surplus budget and thus that there is currently a restrictive or contractionary fiscal stance

Consider the diagram below which measures the budget balance, BB (i.e. taxes minus government expenditure) on the vertical axis and the level of income in the economy, Y, on the horizontal axis. BB 0 BB BB¹ Assuming the normal level of income is Y* and that the current fiscal policy is represented by the dashed line (BB¹) and the current level of income is Y¹, then the diagram suggests that O the segment B - C is a measure of the current structural budget balance. the segment Y* - B is a measure of the current cyclical budget balance O the segment A - C is an indicator of the current cyclical budget balance the segment A - Y¹ indicates a surplus budget and thus that there is currently a restrictive or contractionary fiscal stance

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1DQ

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