Suppose a country has full employment and price stability if the unemployment rate is 4% to 5%, inflation runs at 2% to 3%, and real GDP grows at a rate of 2.25% to 3% per year. If the federal deficit was $3 trillion, economic growth was 2%, and the unemployment rate was 10%, a functional finance economist would suggest increasing taxes in order to balance the budget.

Question

Quizplus · Accepted Answer

A functional finance economist would not necessarily suggest increasing taxes in response to a large federal deficit and high unemployment rate. Instead, they may suggest increasing government spending to stimulate economic activity and create jobs, even if it means running a larger budget deficit in the short term.

Suppose a Country Has Full Employment and Price Stability If