It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential GDP is 9000. Assuming the Keynesian view of the short run, answer the following questions.
It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential GDP is 9000. Assuming the Keynesian view of the short run, answer the following questions.
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 6SQ
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It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential
- Illustrate this economy using a carefully labeled diagram.
- What is a larger concern for this economy:
unemployment or inflation?
- If the economic policy makers want to bring the level of output to the potential GDP by changing the government expenditures (G), how much do they need to change G? Be sure to indicate whether the change is an increase or decrease.
- True or False and explain: If the policy in part c was successful, the unemployment rate will be zero.
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