3 The goods markets of countries A and B aredescribed by the following equations:C = c, + c1(Y – T); I= bo +b,Y – dzi;G = GThe only difference between them is that forcountry A taxes are exogenous (i.e.T = t0), while in country B they are endogenous,i.e. they include an automatic stabilizer: T = t0 +t1Y ; t1 < 0.automatic: T = tO + t1Y ; t1 < 0a. Determine the equilibrium income or GDP foreach country.b. If the values of c1 and d1 are the same in bothcountries, determine in which country there iswhich country has the largest change inequilibrium income with a one-unit increase ingovernment spending.unit increase in public expenditure. Justify youranswer.

Given C=c0+c1Y-T .... (1) I=b0+b1Y-d2i .... (2) G=G For country A: T=t0 For country B:…

The goods markets of countries A and B are described by the following equations: C = co + c¡ (Y – T); I= bo +b,Y – dzi; G = G - | The only difference between them is that for country A taxes are exogenous (i.e. T = t0), while in country B they are endogenous, i.e. they include an automatic stabilizer: T = t0 + t1Y ; t1 < 0. automatic: T = t0 + t1Y ; t1 < 0 %3D %3D a. Determine the equilibrium income or GDP for each country. b. If the values of c1 and d1 are the same in both countries, determine in which country there is which country has the largest change in equilibrium income with a one-unit increase in government spending. unit increase in public expenditure. Justify your answer.

The goods markets of countries A and B are described by the following equations: C = co + c¡ (Y – T); I= bo +b,Y – dzi; G = G - | The only difference between them is that for country A taxes are exogenous (i.e. T = t0), while in country B they are endogenous, i.e. they include an automatic stabilizer: T = t0 + t1Y ; t1 < 0. automatic: T = t0 + t1Y ; t1 < 0 %3D %3D a. Determine the equilibrium income or GDP for each country. b. If the values of c1 and d1 are the same in both countries, determine in which country there is which country has the largest change in equilibrium income with a one-unit increase in government spending. unit increase in public expenditure. Justify your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

A new foreign government is elected and announces that once it is inaugurated, it will expand government purchases permanently. What is the domestic economy's response to this announcement? Use the AA-DD framework to answer your question.
Fiscal policy refers to changes in Group of answer choices federal taxes and purchases that are intended to fund the war on terrorism. the money supply and interest rates that are intended to achieve macroeconomic policy objectives. federal taxes and purchases that are intended to achieve macroeconomic policy objectives. state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.
Since what happens at the macro level is different than what happens at the micro level (macroeconomic externalities), in the Keynesian perspective... a. the government should be responsible for influencing aggregate demand and let prices and wages be set mostly by markets b. the government should be responsible for setting prices and wages throughout the economy but let aggregate demand be determined by markets c. the government should be responsible for influencing aggregate demand and setting prices and wages
What is meant by dynamic inconsistency? Give at least two examples of policies that are dynamically inconsistent.
Illustrate diagrammatically stabilization versus allocation policies
When one focuses on aggregate demand and aggregate supply in macroeconomics, the main focus is on..... a. whether the goods are useful and wanted by consumers. b. whether the goods generate either positive or negative externalities c. what total spending is in relation to total production and its effects on the macroeconomic problems of unemployment and inflation d. both a) and b) are correct
Q7. Name at least one fiscal policy and one monetary policy the federal government enacted in response to Coronavirus. • Label the policy as fiscal or monetary.
How do the instances when expansionary fiscal policy should be used compare with those for contractionary fiscal policy? Expansionary fiscal policy should be used during recessions to help build the economy and contractionary fiscal policy should be used when there is high inflation. Expansionary fiscal policy should be used to increase government revenue and contractionary fiscal policy should be used to increase consumer spending. Expansionary fiscal policy should be used to combat high inflation and contractionary fiscal policy should be used to increase government revenue. Expansionary fiscal policy should be used to decrease the unemployment rate and contractionary fiscal policy should be used when economic growth is too fast.
If you have the power to cut or increase taxes in your country with the aim of boosting aggregate demand, which tax will you most likely touch: Value Added Tax (VAT), Income Tax, or Corporate Tax? Will you cut it or will you increase it? Why? Provide a good explanation for your answer using good economic basis.
The macroeconomic effects of federal investment can increase if : a. State and local governments complement federal policy by taxing the federal investment. b. State and local governments accept the federal investment. c. State and local governments offset federal policy by reducing investment. d. State and local governments complement federal policy by also increasing investment.
In the Fisher model, explain why a rational and forward-looking consumer facing borrowing constraints may end up consuming the same amount as predicted by the Keynesian model.
If stability of the economy is the primary objective of Fiscal Policy, then an Annually Balanced Budget (Government Expenditures = Tax Revenues) is the best policy approach. True or False?