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• A country has a total population of 79 million. • The labour force in the country amounts to 47 million people. • The current unemployment rate is 3.95%. • The natural rate of unemployment is 4.2%. • The marginal propensity to consume is 0.75. • The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. • The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200. The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000. The economy is a closed economy. • The level of investment is 2500. • Transfer payments are at 3000, Using your macroeconomic knowledge, calculate the GDP gap in this economy and identify whether the economy is in a recessionary or inflationary gap. O The country is in a recession. The size of the gap is $45,800 O The country is in a recession. The size of the gap is $2,800 O The country is in an inflationary gap. The size of the gap is -$45,800 O The country is in an inflationary gap. The size of the gap is -$2,800

• A country has a total population of 79 million. • The labour force in the country amounts to 47 million people. • The current unemployment rate is 3.95%. • The natural rate of unemployment is 4.2%. • The marginal propensity to consume is 0.75. • The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. • The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200. The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000. The economy is a closed economy. • The level of investment is 2500. • Transfer payments are at 3000, Using your macroeconomic knowledge, calculate the GDP gap in this economy and identify whether the economy is in a recessionary or inflationary gap. O The country is in a recession. The size of the gap is $45,800 O The country is in a recession. The size of the gap is $2,800 O The country is in an inflationary gap. The size of the gap is -$45,800 O The country is in an inflationary gap. The size of the gap is -$2,800

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Money Growth And Inflation
Section: Chapter Questions
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Question 1 of 50 Question 1 • A country has a total population of 79 million. The labour force in the country amounts to 47 million people. The current unemployment rate is 3.95%. The natural rate of unemployment is 4.2%. The marginal propensity to consume is 0,75. The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200 The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000 The economy is a closed economy. The level of investment is 2500. • Transfer payments are at 3000. Using your macroeconomic knowledge, calculate the GDP gap in this economy and identify whether the economy is in a recessionary or inflationary gap. O The country is in a recession. The size of the gap is $45,800 O The country is in a recession. The size of the gap is $2,800 O The country is in an inflationary gap. The size of the gap is -$45,800 O The country is in an inflationary gap. The size of the gap is -$2,800
Transcribed Image Text:Question 1 of 50 Question 1 • A country has a total population of 79 million. The labour force in the country amounts to 47 million people. The current unemployment rate is 3.95%. The natural rate of unemployment is 4.2%. The marginal propensity to consume is 0,75. The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200 The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000 The economy is a closed economy. The level of investment is 2500. • Transfer payments are at 3000. Using your macroeconomic knowledge, calculate the GDP gap in this economy and identify whether the economy is in a recessionary or inflationary gap. O The country is in a recession. The size of the gap is $45,800 O The country is in a recession. The size of the gap is $2,800 O The country is in an inflationary gap. The size of the gap is -$45,800 O The country is in an inflationary gap. The size of the gap is -$2,800
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Follow-up Question
  • A country has a total population of 79 million.
  • The labour force in the country amounts to 47 million people.
  • The current unemployment rate is 3.95%.
  • The natural rate of unemployment is 4.2%.
  • The marginal propensity to consume is 0.75.
  • The current reserve ratio, which is applicable to all banks, is 6%.  All banks tend to hold excess reserves of 3%. 
  • The current GDP deflator is 117. 
  • The current level of the consumer price index is 109.
  • The intercept of the consumption function is 5200.
  • The level of government expenditure is 6000.
  • Potential GDP is at 43,000.
  • Fixed taxes are at 3000.
  • The economy is a closed economy.
  • The level of investment is 2500.
  • Transfer payments are at 3000.

By how much should fixed taxes be changed in order to fix the GDP gap in this country?
Selected Answer:

Raise fixed taxes by approximately $700.
Answers:

Raise fixed taxes by approximately $933.
 

Raise fixed taxes by approximately $700.
 

Lower fixed taxes by approximately $933.
 

Lower fixed taxes by approximately $700.

 
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