The Australian Government introduced the Job Keeper Payment to help Australian low-income workers in jobs and support businesses affected by the significant economic impact of the COVID-19 pandemic. This payment has an implication for the Australian government's expenditure. Suppose we have the following information for our economy, all amounts are in millions of dollars. C = 800 + 0.8 Yd T0 =400 I0 = 600 G = 1,000 Yfe = 15,000 What is the current equilibrium level of income in this economy? Calculate the size of the output gap. Draw an AE diagram illustrating the current economic situation Suppose the government wants to close the output gap by changing government spending (via Job Keepers Payment). How much does government spending need to increase/decrease for the economy to achieve full employment? Now, suppose the government decides to close the output gap by changing taxes. By how much do taxes need to increase/decrease for the economy to achieve full employment?

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1 Equilibrium Level of Income Y We can use the equilibrium condition in the goods market aggregate expenditure aggregate output to find the equilibriu... View the full answer