Part 1: Given the data below, calculate equilibrium values of real GDP, consumption, investment, exports, and imports.

Part 2: Prove that your calculations are correct by writing an explanation.

Part 3: Assume this economy is operating below its potential. Describe and explain all demand management policies to help this economy recover.

Part 4: Assume this economy is operating $1,000 below its potential. Calculate the individual change in G, T, and I bar necessary to close this output gap.

Data Required:

A bar = $100, MPC = .95, T bar = $50, i bar = .05, alpha zero bar = $25, I bar = $200, alpha one bar = $15, G bar = $100, X bar = $10, alpha two bar = $5, M bar = $15, and alpha three bar = $3

A = Productivity shift variable

MPC = Marginal propensity to consume

T = Aggregate taxes paid to government

i = Investment per capita

G = Government spending

I = Investment

X = Generic variable

M = Money supply

Alpha = Capital's share in Cobb-Douglas production function

Answer rating: 100% (QA)

1 Equilibrium values of real GDP consumption investment exports and imports are as follows Real GDP ... View the full answer