Natural employment deficit in terms

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Reference no: EM137123

Assume Yn = 11,600, t=0.2, and G = 2,610.

a) Calculate the amount of taxes at natural real GDP.

b) Clarify why there is a natural employment deficit. Compute the amount of the natural employment deficit in terms of both billions of dollars and as a percent of natural real GDP.

c) Suppose that the goal of fiscal policymakers is to reduce the size of the natural employment deficit to 1 % of natural real GDP. Calculate what the size of the natural employment deficit has to be in terms of billions of dollars in order for fiscal policymakers to achieve their goal.

d) No change in the tax rate is given. Explain by how much fiscal policymaker might cut government expenditure in order to accomplish their goal.

e) No change in government spending is given. Explain by how much fiscal policymaker must increase the tax rate in order to accomplish their goal.

f) The objective of fiscal policymakers is given. Describe what action economic policymakers must take for the actions of fiscal policymakers to have no effect on real income.

g) Suppose that private saving increases as the interest rate increases. Given the fiscal-monetary policy mix describe in parts c-f, explain whether national saving increases by an amount that is larger than, equal to, or less than the decrease in the natural employment deficit.

Reference no: EM137123

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