A total of 6 Discussion Questions.

Very simple, easy, and straightforward.

Please respond thoroughly and in depth with complete paragraphs

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1. (Natural Rate of Unemployment) What is the relationship between potential output and the natural rate of unemployment?

1. If the economy currently has a frictional unemployment rate of 2 percent, structural unemployment of 2 percent, seasonal unemployment of 0.5 percent, and cyclical unemployment of 2 percent, what is the natural rate of unemployment? Where is the economy operating relative to its potential GDP?
2. What happens to the natural rate of unemployment and potential GDP if cyclical unemployment rises to 3 percent with other types of unemployment unchanged from part (a)?
3. What happens to the natural rate of unemployment and potential GDP if structural unemployment falls to 1.5 percent with other types of unemployment unchanged from part (a)?

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2. For this question use the attached figure

(Real Wages) In the accompanying exhibit, how does the real wage rate at point c compare with the real wage rate at point a? How do nominal wage rates compare at those two points? Explain your answers.

Chapter 10 discussion question 2.doc

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3. (Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held constant, would, in the short run, lead to an increase, a decrease, or no change in the level of real GDP demanded:

1. A decrease in government purchases
2. An increase in net taxes
3. A reduction in transfer payments
4. A decrease in the marginal propensity to consume

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4. (Changes in Government Purchases) Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion.

1. 0.9
2. 0.8
3. 0.75
4. 0.6

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5. (Changing Budget Priorities) What spending category claimed the largest share of federal outlays during the 1960s? How about during the most recent decade?

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6. (Debt Measures) What’s the difference between gross federal debt and federal debt held by the public?