Calculate current GDP and potential GDP

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Reference no: EM131007562

Given that the US economy production function (to calculate current GDP and potential GDP) is : GDP = Y= F(K,L,N) = 0.04K+0.03L+0.03N. The current GDP is produced with K=200, L=100, and N=100, the full employment GDP (potential GDP) can be potentially produced with K=225, L=150 , and N= 150. Given that the average MPS (not MPC) is 0.25 (for problems 1, 2, and 3), and active population is 100 millions. GDP is in Trillion dollars.

If the government wants to impose taxes to finance government spending to reach the full employment level of GDP, how much tax does the government need to impose? Show it quantitatively. Hint: an application of balanced budget multiplier

Reference no: EM131007562

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