Asume an economy with the following variables yn 25000 t

Question

1- Assume an economy with the following variables:

Y^N = 25000; t = 20%; Y^A = 20,000; G = 6200; T_a = 400.

a) Compute the amount of taxes at natural GDP

b) Compute the N.E.D (Natural Employment Deficit/Surplus). Express as a percentage of the natural GDP (YN).

c) Policymakers decide to reduce/increase the size of the N.E.D to 2% of natural GDP. What will be the size of the N.E.D under these conditions?

d) Given no change in the tax rate t, compute by how much they should cut G.

e) Given no change in G, what should be the tax rate in order to accomplish the policy goal.

2- Consider the following economy with T_a = 500 and Y^A = 10,000.

a) If G = 3500, Derive the equation of the BDA as a function of t (tax rate).

b) Find the tax rate at which the country will be running a budget balance.

c) Find the values of the deficits for the following tax rates: 20%, 22%, 25%, 30%, 32%, 35% and 40%.

d) Graph your findings in c using any graphing tool.

3- Consider the following economy with T_a = 500 and Y^A = 10,000.

a) If t is constant at 20%, derive the equation of the BDA as a function of G.  

b) Find the value of G for which the country will be running a budget balance. Budget Balance BD = 0;

c) Find the values of the deficits for the following G spending levels: 4000, 3500, 3000, 2500, 2000, 1500 and 1000.     

d) Graph your findings in c using any graphing tool.