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An Economy Has an Output Gap of -2%,government Spending of 50

Question 7

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An economy has an output gap of -2%,government spending of 50% of GDP and a deficit of 4% of GDP,what is the structural deficit if the elasticity of revenue with respect to out is 0.75 whilst the elasticity of spending with respect to output is -0.25?


A) 0
B) 1
C) 2
D) 3
E) 4

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