Question
Assume the following: The US GDP is $19T. The natural rate of unemployment is 3.5%. The Unemployment rate currently is 8%. The Covid 19 economic
Assume the following: The US GDP is $19T. The natural rate of unemployment is 3.5%. The Unemployment rate currently is 8%.
The Covid 19 economic relief package (CERP) has been passed for $1.9T. The potential US GDP is $21T. The Marginal Propensity to Consume(MPC) in the US is: .75. Assume CERP is all Direct Government Expenditure.
1. What is the size of the negative GDP gap in dollars? Is CERP too much, too little or just about right, using the aggregate expenditure model? Why? 5pts for each question
2. Assume that CERP is completely a reduction in taxes, how, if at all, does your answer change +5 pts
3. What changes would you make to the above analysis (assumptions about MPC, unique features of this recession), that would change the outcome, and why would the outcome change?
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Modern Principles of Economics
Authors: Tyler Cowen, Alex Tabarrok
3rd edition
1429278390, 978-1429278416, 1429278412, 978-1429278393
