A Fiscal Stimulus Program to Fight the Corona Crisis? The German government wants to decide about the design of a stimulus package to combat the economic consequences of the Corona pandemic. Task 1 Assume that the German economy is currently fully described by the following equations (with C= Consumption, Y= Income, T= Tax): C = 260 + 0.6(Y-T) T = 0.2Y Current investments are 400 and government expenditures are 380. Three policy options are discussed: Option A: No stimulus program Option B: Additional government spending of €156 billion Option C: As option B, but a part of the additional government expenditures will be used for incentives to invest in renewable energy as such that an increase in private investments by 26 can be expected. Calculate equilibrium income and the budget surplus for all 3 Options. Are all options in line with the Maastricht government deficit criteria?
A Fiscal Stimulus Program to Fight the Corona Crisis?
The German government wants to decide about the design of a stimulus package to combat
the economic consequences of the Corona pandemic.
Task 1
Assume that the German economy is currently fully described by the following equations
(with C= Consumption, Y= Income, T= Tax):
C = 260 + 0.6(Y-T)
T = 0.2Y
Current investments are 400 and government expenditures are 380.
Three policy options are discussed:
Option A: No stimulus program
Option B: Additional government spending of €156 billion
Option C: As option B, but a part of the additional government expenditures will be used for
incentives to invest in renewable energy as such that an increase in private investments by 26
can be expected.
Calculate equilibrium income and the budget surplus for all 3 Options. Are all options in line
with the Maastricht government deficit criteria?
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