ECO 202 Module 2 Case Assignment

ECO 202 Macroeconomics - Trident

December 2015

Module 2 - Case

FISCAL POLICY

Case Assignment: Submit a 4- to 5-page paper that addresses the following questions.

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