Assume the following model of the expenditure sector:

Y = C + I + G + NX

C = 420 + (4/5)YD

T0 = 100

Io = 160

Go = 180

NXo = - 40

1- Calculate the multiplier?

2- Calculate the equilibrium GDP?

3- If the government would like to increase the equilibrium level of output (Y) to the full-employment level Y* = 1,800, by how much should government purchases (G) be changed?

4- Assume we want to reach Y* = 1,800 by changing government taxes instead. By how much should Taxes be changed?

5- Assume you increase both government purchases (G) and taxes (T) by the same lump sum of of + 300. Would this sufficient to reach the full-employment level of output at Y* = 1800?

Answer rating: 100% (QA)

Answer Given YCIG MX 1 c420 4 Yel ... View the full answer