<u>Solution and Explanation:</u>
a) The deficit is structural deficit, not cyclical deficit
b) Structural deficit is $450 billion
Revenue less than outlays; the GDP = Potential GDP
cyclical - during a recession
, Structural - normal times
This is the budget deficit at potential GDP
Structural deficit = Total Government deficit - Cyclical Deficit
Government expenditures do not change with output
c) the deficit is both structural and cyclical
200 billion below potential; at potential output it will be 200 billion higher
Cyclical deficit = $200 billion
Structural = 450 - 200 = 250
d)
Cyclical surplus = $350 billion
Structural deficit = $100 billion
e) Structural as normal stabilization policies will not remove a structural deficit
