Suppose that the economy of Country A is characterized by the following behavioral equations: Variable Consumption:...
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Suppose that the economy of Country A is characterized by the following behavioral equations: Variable Consumption: Taxes: Investments: Government expenditures: Net exports: Equation C = 600+ 0.7 YD T = 200 1 = 400+ 0.2 Y G = 200 NX2000.1 Y where Y denotes the real GDP and YD denotes the disposable income (YD - Y-T). Now suppose that the output gap in Country A is -1000. What should be the increase in government expenditures in order to close the gap and make the economy to reach its potential level of GDP? (Hint: Calculate the slope of aggregate expenditure line. Then, by using the value you find, calculate the value of expenditure multiplier using the formula: multiplier = 1/(1-slope of AE line). Finally, calculate the amount of change that is needed in G in order to close the output gap). Suppose that the economy of Country A is characterized by the following behavioral equations: Variable Consumption: Taxes: Investments: Government expenditures: Net exports: Equation C = 600+ 0.7 YD T = 200 1 = 400+ 0.2 Y G = 200 NX2000.1 Y where Y denotes the real GDP and YD denotes the disposable income (YD - Y-T). Now suppose that the output gap in Country A is -1000. What should be the increase in government expenditures in order to close the gap and make the economy to reach its potential level of GDP? (Hint: Calculate the slope of aggregate expenditure line. Then, by using the value you find, calculate the value of expenditure multiplier using the formula: multiplier = 1/(1-slope of AE line). Finally, calculate the amount of change that is needed in G in order to close the output gap).
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Related Book For
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone
Posted Date:
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