Consider a simple Keynesian income-spending model of an economy described by the following equations 1. C=250 + 0.75Yd TR = 200 %3D T= 0.1Y %3D 1 250 G= 600 X 350 M=0.15Y (a) Calculate the equilibrium income level. (b) Sketch this equilibrium position using a two-dimensional graph. If potential GDP is 3,570 what is the size of the output gap? If public sector spending on goods and services is increased by 50, what is the new equilibrium level of income? How much should public spending have been increased by in order to have closed the output gap? (c) [All calculations to one decimal point. You must report your calculations.]

Consider a simple Keynesian income-spending model of an economy described by the following equations 1. C=250 + 0.75Yd TR = 200 %3D T= 0.1Y %3D 1 250 G= 600 X 350 M=0.15Y (a) Calculate the equilibrium income level. (b) Sketch this equilibrium position using a two-dimensional graph. If potential GDP is 3,570 what is the size of the output gap? If public sector spending on goods and services is increased by 50, what is the new equilibrium level of income? How much should public spending have been increased by in order to have closed the output gap? (c) [All calculations to one decimal point. You must report your calculations.]

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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