Here's the situation: The United States has a population of 325 million, with a Labor Force of 150 million. There are 230 million people in the United States who are age 16 and older. Currently, 12.5 million people are classified as unemployed by the BLS. The President recently addressed the American people, saying that she believes that this is an unacceptable economic situation for this Country. She proposes a domestic spending stimulus package to provide jobs, grow the economy, and lower the unemployment rate. She instructs the Secretary of Labor that she would like to see unemployment drop to its expected 'Natural Rate.'
Paul Kwiecinski, the intelligent and distinguished Chair of the Council of Economic Advisors, said “I can help with this problem.” I will go to the great State of Wisconsin and assemble a team of MPTC Economists to define the situation and suggest solutions.” He also said, “I will use a graph, of course, because graphs are the ------.” But, sadly, he didn’t have time to finish his sentence because just then a large personal luxury submarine floated by and totally distracted him into wistful thought. Before it submerged, he noticed that the submarine was named the “JMK.” “How very economic in a fiscal way,” he said silently to himself.
Through his brilliant economic work, Paul has determined that the U.S. economy will need to reach a Real GDP level of $14 Trillion to reach the President’s employment goals. He has also determined, after more extremely brilliant analysis and deduction (if I do say so myself), that the national MPC now stands at 0.8 and will not change. Paul prepared the attached graph (G.I.I.T.W.) to help you in your important task.
You are a valuable member of the assembled Wisconsin MPTC economic team. Your job is to help the President. You will do this by answering the questions found here. In all your responses, you must be detailed and specific, using economic concepts and terms. The President is depending on us.
All the information you need is described in the case above. There is no time limit. There is also a required Discussion area for class collaboration on this project. You can use this area to work together, but each person must submit there own assessment.
How large of a government spending (fiscal) program would the Council need to recommend to the President to achieve her goal for growing the economy?
Solution :- 1. Current unemployment rate = no. of
unemployed/labor force = 12.5/150 = 8.3%
'Natural rate of unemployment' is usually between 4.7% - 5.8%, assuming President aims to cut down the rate to 5%.
We have, (x / 150) = 0.05 such that x represents no. of individuals comprising naturally unemployed
x= 7.5 million
Thus, the number of new jobs required to be created is 12.5 - 7.5 = 5 million
2. The amount government will spend to create 5 million jobs are given by:
[140,00,000 - Current real GDP (in millions)]
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