Study question is on Full Employment Model:

Consider the long-run model of the economy

a. Two politicians are debating the better approach to spur

long-run growth. Candidate Simpson suggests cutting taxes on households such

that households have more money to spend on goods and services. Candidate

Griffin suggests lower taxes on interest income such that households have a

greater incentive to save. Assuming both policies would do what the candidates

suggest, which is more likely to spur long-term growth? Kindly explain this briefly.

b. Suppose the government introduces a new requirement that all

people on any form of state aid, such as food stamps or living assistance

funding, actively seek work. As a result, the labor force participation rate

increases. Assuming all else equal, what effect does that have on (real) wages

and labor productivity in the long run? (Assume a vertical labor supply curve.)