QUESTION 52 (5 marks)
A government’s deficit rises from $20 billion to $30 billion. Its estimated cyclical deficit rises from $5 billion to $25 billion. Calculate the structural deficit in each period and assess the claim that the larger headline deficit proves discretionary fiscal policy became more expansionary.
Practice marking scheme
Answer
Structural deficit: $15 billion then $5 billion; the headline change does not prove discretionary expansion.
Working
Using total deficit = cyclical + structural deficit, the estimates are 20 − 5 = 15 and 30 − 25 = 5 billion. The underlying deficit narrows by $10 billion while the cycle worsens the headline balance. This is consistent with a less expansionary underlying position. Structural estimates are uncertain and do not by themselves identify every policy measure.
Marking criteria
- Calculates both structural estimates. [2 marks]
- Distinguishes cyclical deterioration from underlying change. [2 marks]
- Qualifies the inference rather than relying on the headline deficit. [1 mark]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.