Monday, May 14, 2007

Chapter 12 key question 7, 10

7. The full-employment budget measures what the Federal surplus would be if the economy reached full-employment level of GDP with existing taxing and spending policies. If the full-employment budget is balanced, then the government is in neither expansionary nor contractionary policy. The budget is the surplus results when revenues and expenditures occur over a year if the economy is not at full-employment. Figure 12-3 shows that if full-employment GDP level was GDP3, then the full-employment budget is contractionary because there would be a surplus. Even though the budget has no deficit at GDP2, fiscal policy is contractionary. Government should cut tax or increase spending to move the economy to full-employment, to raise G or lower T line, or a combination of both until GDP3.

10. dont get this one

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