Consider a closed economy (no trade) where: C = 400+0.8YD lo = 1600 Go = 2200 NT = 0.2Y a. Calculate Y*. b. If Yp=10,000, is there an inflationary or recessionary gap? c. Calculate the change in government expenditure (G) necessary to move the economy back to its potential.

Consider a closed economy (no trade) where: C = 400+0.8YD lo = 1600 Go = 2200 NT = 0.2Y a. Calculate Y*. b. If Yp=10,000, is there an inflationary or recessionary gap? c. Calculate the change in government expenditure (G) necessary to move the economy back to its potential.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 2CQ

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Question

Consider a closed economy (no trade) where:
C = 400+0.8YD
lo = 1600
Go = 2200
NT = 0.2Y
a. Calculate Y*.
b. If Yp=10,000, is there an inflationary or recessionary gap?
c. Calculate the change in government expenditure (G) necessary to move the
economy back to its potential.

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