Waxwania is producing $550 of real gdp, whereas the potential real gdp (or full-employment real gdp) is $650. how large is its budget deficit?

Question

Londyn

Business

17 December, 16:42

Waxwania is producing $550 of real gdp, whereas the potential real gdp (or full-employment real gdp) is $650. how large is its budget deficit?

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Answers (2)

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Toby Ho · Answer 1

The answer is $100

Explanation:

With the data we have at our disposal on Waxwania, we can analyze that if the real GDP is $550, which would be the level of real production, that is, what it produced; and knowing that the real potential GDP is $650, that is, the level of production that the economy can reach with the efficient use of production factors, we can see that this economy is functioning at a lower level than it could. Therefore we can say that the budget deficit is $100.

Have a nice day!

Kayden Romero · Answer 2

There seems to be an error in your question. Budget deficit is when the government spending exceeds its revenue, yet your question makes no mention of expenses. However, it seems to be referring to something we call the "negative output gap", where actual output is lower than potential output. If this is the case, then the output gap is $100. (I suspect you omitted the million as no country, not even fictional, only produces $500.)