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Q. 2

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Economics Today
Found in: Page 319

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Short Answer

Suppose that the Office of Management and Budget provides the estimates of federal budget receipts, federal budget spending, and GDP shown below, all expressed in billions of dollars. Calculate the implied estimates of the federal budget deficit as a percentage of GDP for each year.

The budget deficit in 2015 is 3.55 percent of GDP.

The budget deficit in 2016 was 3.37 percent of GDP.

The budget deficit in 2017 is 3.35 percent of GDP.

The budget deficit in 2018 is 3.36 percent of GDP.

See the step by step solution

Step by Step Solution

Step 1: Calculation year 2015.

In the year 2015,

Federal budget receipts=$3,829.8

Federal budget spending=$4,382.6

GDP=$15,573.2

Calculating the budget deficit:-

Budget Deficit=Federal Budget Spending-Federal Budget Receipt

Budget Deficit=$4,382.6-$3,829.8

Budget Deficit=$552.8

Calculating the budget deficit as percentage of GDP:-

role="math" localid="1651583575267" Budget Deficit as percentage of GDP=Budget deficitGDP×100

role="math" localid="1651584084850" Budget Deficit as percentage of GDP=$552.8$15,573.2×100

Budget Deficit as percentage of GDP=3.55percent

Step 2: Calculation year 2016. 

In the year 2016,

Federal budget receipts=$3,892.4

Federal budget spending=$4,441.6

GDP=$16,316.0

Budget Deficit=Federal Budget Spending-Federal Budget Receipt

Budget Deficit=$4,441.6-$3,892.4

Budget Deficit=$549.2

Calculating the budget deficit as percentage of GDP:-

Budget Deficit as percentage of GDP=Budget deficitGDP×100

Budget Deficit as percentage of GDP=$549.2$16,316.0×100

role="math" localid="1651584228109" Budget Deficit as percentage of GDP=3.37percent

Step 3: Calculation year 2017.

In the year 2017,

Federal Bedget receipts=$3,964.2

role="math" Federal Bedget Spending=$4,529.3

GDP=$16,852.1

Budget Deficit=Federal Budget Spending-Federal Budget Receipt

Budget Deficit=$4,529.3-$3,964.2

Budget Deficit=$565.1

Calculating the budget deficit as percentage of GDP:-

Budget Deficit as percentage of GDP=Budget deficitGDP×100

Budget Deficit as percentage of GDP=$565.1$16,852.1×100

Budget Deficit as percentage of GDP=3.35percent

Step 4: Calculation year 2018.

In the year 2018,

Federal Budget receipts=$4,013.5

Federal Budget Spending=$4.600.1

GDP=$17,454.4

Budget Deficit=Federal Budget Spending-Federal Budget Receipt

Budget deficit=$4,600.1-$4,013.5Budget deficit=$586.6

Calculating the budget deficit as percentage of GDP:-

Budget Deficit as percentage of GDP=Budget deficitGDP×100

Budget Deficit as percentage of GDP=$586.6$17,454.4×100

Budget Deficit as percentage of GDP=3.36percent

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