The country of Rubadonia has an open economy, characterized by the following variables: Y=5000 ...

 

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The country of Rubadonia has an open economy, characterized by the following variables: • Y=5000 • G=1000 • T-1000 . C=250 +0.75 (Y-T) • 1 = 1000-50r .NX= 500 1. Express the aggregate demand AD of this economy as a function of C, G, I and XN 2. Plot the aggregate demand in the (AD,Y) -space. 3. Find the equilibrium of the goods market. What is the size of the multiplier? 4. Following a big economic crisis the government decides to double their spending (G-2000). Show this change in your graph. 5. What is the change in the optimal output? 6. Go back to the initial situation, the government decides to cut taxes by half on income (T500). Show this change in your graph. 7. Has this policy affected the size of the multiplier? 8. What is the change in the optimal output? 9. Which of the policies has the bigger impact on the optimal output? The country of Rubadonia has an open economy, characterized by the following variables: • Y=5000 • G=1000 • T-1000 . C=250 +0.75 (Y-T) • 1 = 1000-50r .NX= 500 1. Express the aggregate demand AD of this economy as a function of C, G, I and XN 2. Plot the aggregate demand in the (AD,Y) -space. 3. Find the equilibrium of the goods market. What is the size of the multiplier? 4. Following a big economic crisis the government decides to double their spending (G-2000). Show this change in your graph. 5. What is the change in the optimal output? 6. Go back to the initial situation, the government decides to cut taxes by half on income (T500). Show this change in your graph. 7. Has this policy affected the size of the multiplier? 8. What is the change in the optimal output? 9. Which of the policies has the bigger impact on the optimal output?

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