Problem 1: The high employment deficit is estimated at $100 billion. Assuming that the ecomony is operating below full employment and that it will not overheat during the year,
a. the actual budget is not in deficit.
b. increasing GDP will eliminate the deficit.
c. increasing GDP will not eliminate the deficit.
e. the actual budget is in surplus.
Problem 2: The current price of compact discs, which are traded in perfectly competitive markets, is $10. A $1 per unit tax is levied on the discs. Annual record sales decline from five million to four million as a result of the tax. Assuming that the income effect of the tax induced price change is negligible, the excess burden of the tax will be,
a. $500,000 per year
b. $1 million per year
c. $2 million per year
d. $2.5 million per year