Consider the following equations that describe an open economy with government, where government transfers equal $0....

 

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Consider the following equations that describe an open economy with government, where government transfers equal $0. • C = 320+ 0.6YD • 1936 • Budget Balance = 0.2Y - 534 • NX= 712 - 0.08Y Part a: Determine the equilibrium level of GDP. Part b: Suppose potential GDP (Y*) is 4,000. Determine the value of G₂ if the goal is to stabilize the economy by restoring equilibrium GDP to its potential level. Verify that you have the correct value for G₂ by solving for the equilibrium GDP. Hint: keep your calculations in fractional form whenever possible - it'll lead to nice numbers at the end. Part c: How has the magnitude of the multiplier and the AE curve changed because of the changes to government spending? Use 2 to 3 sentences to provide an explanation that supports your answer. Part d: Government spending returns to G₁ and the government wants to achieve potential GDP by altering the tax rate (t). Determine the value of t₂ that will restore Y = Y*. Specify your answer in %-form, rounding to two decimal places (example: 12.34%). Verify that you have the correct value for t₂ by solving for the equilibrium GDP. Part e: How has the magnitude of the multiplier and the AE curve changed because of changes to the tax rate? Use 2 to 3 sentences to provide an explanation that supports your answer. Consider the following equations that describe an open economy with government, where government transfers equal $0. • C = 320+ 0.6YD • 1936 • Budget Balance = 0.2Y - 534 • NX= 712 - 0.08Y Part a: Determine the equilibrium level of GDP. Part b: Suppose potential GDP (Y*) is 4,000. Determine the value of G₂ if the goal is to stabilize the economy by restoring equilibrium GDP to its potential level. Verify that you have the correct value for G₂ by solving for the equilibrium GDP. Hint: keep your calculations in fractional form whenever possible - it'll lead to nice numbers at the end. Part c: How has the magnitude of the multiplier and the AE curve changed because of the changes to government spending? Use 2 to 3 sentences to provide an explanation that supports your answer. Part d: Government spending returns to G₁ and the government wants to achieve potential GDP by altering the tax rate (t). Determine the value of t₂ that will restore Y = Y*. Specify your answer in %-form, rounding to two decimal places (example: 12.34%). Verify that you have the correct value for t₂ by solving for the equilibrium GDP. Part e: How has the magnitude of the multiplier and the AE curve changed because of changes to the tax rate? Use 2 to 3 sentences to provide an explanation that supports your answer.

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Budget balance s Given TR O At equilibrium 6 Y4170 ... View the full answer