One quick easy question:

Question 1 (15 points) Use the following information to answer questions 1 to 5. The AD and AS curves of a hypothetical economy are given by the following equations, respectively: P = 700 - 2Y P= 2Y + 300 - (20/T) where P is the price level, Y is real GDP (in billions of dollars), and T is the excise tax (in percent). Suppose that excise taxes are initially set at T=O.1. 1. Initially, what are the equilibrium price and the equilibrium GDP in this economy? (3 points) 2. Suppose that excise taxes are reduced to T=0.05. What is the size of the vertical shift of the AS curve? (3 points) 3. What is the new macroeconomic equilibrium after the decrease in T? Explain the direction of the change in P and Y. (3 points) 4. Consider the initial equilibrium (question 1). What would be the new macroeconomic equilibrium if the government increases spending by 200. (3 points) 5. What would be the value of the multiplier that allows for price increases in this economy. (3 points)