Assume YN = 10,900, Y = 10,600, t = 0.16, and
(a) Compute the amount of taxes at natural real GDP and actual real GDP.
(b) Compute the amount of the natural employment deficit.
(c) Compute the amount of the actual deficit. Is there a cyclical surplus or deficit? How large is it?
(d) Suppose that fiscal policy is used to increase actual real GDP to natural real GDP. This fiscal expansion requires the average tax rate to be cut to 0.14. Compute the new amount of taxes at natural real GDP.
(e) Compute the new amount of the natural employment deficit. Why are the natural employment deficit and actual deficit now equal? Why is there neither a cyclical surplus nor a cyclical deficit?
(f) Suppose that instead of fiscal policy, monetary policy is used to increase actual real GDP to natural real GDP. What are the actual and natural employment deficits? Why are these answers different from part e?