Suppose that the economy of country 1 is characterized by the following behavioral equations: Variable Equation Consumption C=1234 +0.5 YD Investments I=1000 + 0.1 Y Government expenditures G= 100 Net exports Nx= 300-0.2 Y Where Y denotes the real GDP and YD denotes the disposable income (YD= Y-T). Suppose that the output gap in country is measured as -15000. What should be increase in government expenditure in order to close the gap and make the economy to reach its potential level of GDP?.

Suppose that the economy of country 1 is characterized by the following behavioral equations: Variable Equation Consumption C=1234 +0.5 YD Investments I=1000 + 0.1 Y Government expenditures G= 100 Net exports Nx= 300-0.2 Y Where Y denotes the real GDP and YD denotes the disposable income (YD= Y-T). Suppose that the output gap in country is measured as -15000. What should be increase in government expenditure in order to close the gap and make the economy to reach its potential level of GDP?.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.15P

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