Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 6SQ
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Question
Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively.
- What is MPC, MPS and autonomous consumption
- Derive the saving function.
- What is the equilibrium level of income? Y= AD=C+I+G
- If government purchases increase to $150 million, what is the new equilibrium level of income?
- What level of government purchases is needed to achieve an income of $2000 million?
- From question (5) you get the newly government purchase. Now find out the multiplier value
- What is the amount of shift in AD curve? [Use the multiplier value from (5)]
** Need the answer of question 7 only **
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