1. President Nellie L. Inzer is faced with a severe recession where real aggregate output is $15 trillion. Unemployment rates hover at 10%, and at full employment the CBO estimates that the national income should be $18 trillion; in addition, your statisticians have calculated that your citizens consume an additional 80 dollars 100 dollars they receive in additional disposable income. Having taken her dad's Honors Economics for every class, President Nellie ponders an economic solution--she's halted all international trade and has fixed interest rates. She is faced with three possible decisions from her Council of Economic Advisors to fight this major recession I. Lower taxes for her citizens by $500 billion. II. Buy $500 billion in "green" technologies (goods and services) aimed at making the American government more eco-friendly. III. Reduce government expenditures on goods and services by $700 billion while simultaneously increasing Transfer payments to citizens by $900 billion. Assume that these measures may not affect each other and that the net effects can be calculated simply without regard to the multitude of variables one might think occurs. Ignore reality a bit.
1. President Nellie L. Inzer is faced with a severe recession where real aggregate output is $15 trillion. Unemployment rates hover at 10%, and at full employment the CBO estimates that the national income should be $18 trillion; in addition, your statisticians have calculated that your citizens consume an additional 80 dollars 100 dollars they receive in additional disposable income. Having taken her dad's Honors Economics for every class, President Nellie ponders an economic solution--she's halted all international trade and has fixed interest rates. She is faced with three possible decisions from her Council of Economic Advisors to fight this major recession I. Lower taxes for her citizens by $500 billion. II. Buy $500 billion in "green" technologies (goods and services) aimed at making the American government more eco-friendly. III. Reduce government expenditures on goods and services by $700 billion while simultaneously increasing Transfer payments to citizens by $900 billion. Assume that these measures may not affect each other and that the net effects can be calculated simply without regard to the multitude of variables one might think occurs. Ignore reality a bit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question: Since you took Mr. Inzer’s Honors Economics course, you question your Economic advisors. Based on what you know about economics, what policy should Nellie Bellie enact to close the output gap? Explain, using an actual example and precise numbers; show your calculations.
Transcribed Image Text:1. President Nellie L. Inzer is faced with a severe recession where real aggregate output is $15 trillion.
Unemployment rates hover at 10%, and at full employment the CBO estimates that the national income should
be $18 trillion; in addition, your statisticians have calculated that your citizens consume an additional 80 dollars
100 dollars they receive in additional disposable income. Having taken her dad's Honors Economics
for
every
class, President Nellie ponders an economic solution--she's halted all international trade and has fixed interest
rates.
She is faced with three possible decisions from her Council of Economic Advisors to fight this major recession
I. Lower taxes for her citizens by $500 billion.
II. Buy $500 billion in "green" technologies (goods and services) aimed at making the American
government more eco-friendly.
III. Reduce government expenditures on goods and services by $700 billion while simultaneously
increasing Transfer payments to citizens by $900 billion. Assume that these measures may not affect each
other and that the net effects can be calculated simply without regard to the multitude of variables one
might think occurs. Ignore reality a bit.
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