Consider a closed economy represented by the following equations:
C= 0.5 (Y - T)+ 500 With I= 200 G= 150 T= 100

Questions:
1) Explain these equations. What do they correspond to?
2) Determine the equilibrium income of this economy.
3) Calculate consumption, savings and aggregate demand at this equilibrium.
4) The government decides to stimulate the economy and achieve full employment income (set at 1,000 units) by means of a fiscal policy. How much should G vary?
5) Instead of increasing public spending, the government decides to raise taxes T = Ty with 40= %.
a) Write down and calculate the new equilibrium income
b) Calculate the fiscal policy multiplier To arrive at full-employment income (1,000 units) by how much must T vary?

Answer rating: 100% (QA)

1 The equations The equations youre provided with correspond to different parts of a simple model of a closed economy an economy with no international ... View the full answer