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Week 7 homework - Kenneth Lingenfelter Week 7 Homework...

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Kenneth Lingenfelter, Week 7 Homework, Chapter 6. Problems 1; Chapter 7. Problems 3 Chapter 6, Problem # 1 a. Natural real GDP equals 0.2*11,600= 2,320 b. Because taxes 2,320 are less than government spending 2,610; deficit equals 2,320 − 2,610 = −290; percentage of natural real GDP equals −290/11,600 = −.025 = −2.5% c. Natural employment deficit must equal −.01*11,600= −116 billion d. T − G = −116; T = 2,320 at natural real GDP, tax rate, 2,320 − G = −116 or G = 2,436; reduce government spending to 2,436 e. T − G = −116 and since G = 2,610; t(11,600) − 2,610 = −116, or t*11,600 = 2,494; the tax rate 2,494/11,600 = .215 f. Raising taxes or cut government spending will assist fiscal policy makers in accomplishing the goal in reducing employment deficit to 1% of the GDP. To lower the interest rates, monetary policymakers would have to set new standards to effect fiscal policy. g. The mix described in those two parts reduces the interest rate. The decline in the natural employment deficit is the less in private savings as the interest rates decline. National savings will increase in an amount that is less than the employment deficit. Chapter 7, Problem # 3 a. The exchange rate 0-12 is 2,800 – 200*0 = 2,800; 2,800-200*1=2,600; 2,800-200*2=2,400; 2,800- 200*3=2,200; 2,800-200*4=2,000; 2,800-200*5=1,800; 2,800-200*6=1,600; 2,800-200*7=1,400; 2,800-
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