The economy of Tricksland is currently producing TS450 billion of output, while enduring 12% cyclical unemployment....

Transcribed Image Text:

The economy of Tricksland is currently producing TS450 billion of output, while enduring 12% cyclical unemployment. The natural rate of unemployment in Tricksland is 8%. Tricksland is a labor-surplus economy, with considerable amount of labor resources in the economy. a) Given this background, what is Tricksland's potential GDP. and what is the inherent GDP gap? b) Tricksland's economy is open to trade with the outside world, and the economy's personal consumption expenditure is estimated as follows: C=400+0.95 *Y₁ Its imports behavior is described by the equation: M 120+.25 Yd. Investment and government spending are autonomous, whereas exports is exogenously determined by foreign buyers. Note that disposable income, Yd=(Y-T), where T is the total tax amount paid from all incomes earned. c) Using the information provided with this economy, formulate an equation for Tricksland's equilibrium GDP, starting with the equation for the GDP in an open economy. Then, by substituting the personal consumption. expenditure equation above, as well as the disposable income, derive the equilibrium GDP for Tricksland. d) From the equilibrium GDP equation in question (b) above, determine the government expenditure multiplier [d(GDP)/dG], investment expenditure multiplier [d(GDP)/dI], and tax multiplier [d(GDP)/dT]. The economy of Tricksland is currently producing TS450 billion of output, while enduring 12% cyclical unemployment. The natural rate of unemployment in Tricksland is 8%. Tricksland is a labor-surplus economy, with considerable amount of labor resources in the economy. a) Given this background, what is Tricksland's potential GDP. and what is the inherent GDP gap? b) Tricksland's economy is open to trade with the outside world, and the economy's personal consumption expenditure is estimated as follows: C=400+0.95 *Y₁ Its imports behavior is described by the equation: M 120+.25 Yd. Investment and government spending are autonomous, whereas exports is exogenously determined by foreign buyers. Note that disposable income, Yd=(Y-T), where T is the total tax amount paid from all incomes earned. c) Using the information provided with this economy, formulate an equation for Tricksland's equilibrium GDP, starting with the equation for the GDP in an open economy. Then, by substituting the personal consumption. expenditure equation above, as well as the disposable income, derive the equilibrium GDP for Tricksland. d) From the equilibrium GDP equation in question (b) above, determine the government expenditure multiplier [d(GDP)/dG], investment expenditure multiplier [d(GDP)/dI], and tax multiplier [d(GDP)/dT].

Answer rating: 100% (QA)

a Trickslands potential GDP is the amount of output the economy is capable of producing when all resources are fully employed The potential GDP can be ... View the full answer