Assume economy of Germany has high inflation. To rain inflation and achieve the potential GDP Germany raises taxes on its citizens by €500 billion. Furthermore, assume that Germans save 25% of the change in their disposable income. 1. Calculate the effect the €500 billion change in taxes on the German GDP. 2. If actual GDP is €10000, then how much is potential GDP? 3. If instead of raising taxes, German Government decides to decrease government purchases, compute the necessary change in purchases.

Assume economy of Germany has high inflation. To rain inflation and achieve the potential GDP Germany raises taxes on its citizens by €500 billion. Furthermore, assume that Germans save 25% of the change in their disposable income. 1. Calculate the effect the €500 billion change in taxes on the German GDP. 2. If actual GDP is €10000, then how much is potential GDP? 3. If instead of raising taxes, German Government decides to decrease government purchases, compute the necessary change in purchases.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: Money Growth And Intlation

Section: Chapter Questions

Problem 6CQQ

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