Assume YN = 11,600, t = 0.2, and G = 2,610.
a) Compute the amount of taxes at natural real GDP.
b) Explain why there is a natural employment deficit. Compute the amount of the natural employment deficit in terms of both billions of dollars and as a percent of natural real GDP.
c) Suppose that the goal of fiscal policymakers is to reduce the size of the natural employment deficit to 1 percent of natural real GDP. Compute what the size of the natural employment deficit must be in terms of billions of dollars in order for fiscal policymakers to achieve their goal.
d) Given no change in the tax rate, compute by how much fiscal policymakers must cut government spending in order to accomplish their goal.
e) Given no change in government spending, compute by how much fiscal policymakers must increase the tax rate in order to accomplish their goal.
f) Given the objective of fiscal policymakers, explain what action monetary policymakers must take for the actions of fiscal policymakers to have no effect on real income.
g) Suppose that private saving increases as the interest rate increases. Given the fiscal-monetary policy mix described in parts c-f, explain whether national saving increases by an amount that is larger than, equal to, or less than the decrease in the natural employment deficit.


Suppose that ex is the exchange rate between the U.S. dollar and the Chinese yuan in that ex indicates the number of yuan that can be purchased with one dollar. The demand for dollars, denoted, D$, is given by the equation D$ = 2,800 - 200ex. The supply of dollars, denoted, S$, is given by the equation S$ = 400 + 100ex.
a) Calculate the demand for dollars and supply of dollars at exchange rates between 0 and 12 in increments of one.
b) Graph the demand for dollars and supply of dollars against the exchange rate. What is the value of the equilibrium exchange rate?
c) Suppose the demand for dollars increases by 300 billion at each exchange rate. Explain if the increase in demand results from a large purchase by the Chinese of a new American-made airplane or a large purchase by Americans of new lower priced Chinese-made high definition televisions. Calculate the new demand for dollars at each exchange rate and graph the new demand curve. What is the new equilibrium exchange rate, given the original supply of dollars?
d) Suppose the supply of dollars increases by 600 billion at each exchange rate. Explain if the increase in supply results from a large purchase large by the Chinese of a new American-made airplane or a large purchase by Americans of new lower priced Chinese-made high definition televisions. Calculate the new supply of dollars at each exchange rate and graph the new supply curve. What is the new equilibrium exchange rate, given the original demand for dollars?