Assignment:
1. According to Okun's Law, if the normal rate of growth of GDP is 3% and the current unemployment rate is 6%, an increase in GDP growth to 4% would cause unemployment to change by what percentage?
2. When total output, income, employment, and trade decline for 6 to 12 months, the economy is in what part of the business cycle?
3. Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer.
4. To eliminate a recessionary gap, what fiscal policy should the government pursue? Be specific.
5. Indicate which of the following is expansionary OR contractionary fiscal policy:
• Increasing income tax
• Bailing out the auto industry
• The purchase of military helicopters
Assignment Expectations
Use concepts from the modular background readings as well as any good-quality resources you can find. Be sure to cite all sources within the text and provide a reference list at the end of the paper.
Length: 4-5 pages double-spaced and typed.
The following items will be assessed in particular:
• Your ability to understand an application of fiscal policy.
• Some in-text references to the modular background material (APA formatting recommended).
• The essay should address each element of the assignment. Remember to support your answers with solid references including the case readings.