Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 27.B, Problem 1TY
a)
To determine
The equilibrium level of
b)
To determine
The multipliers for government purchases and for fixed taxes.
c)
To determine
Some policies that would move GDP to the full employment level.
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Students have asked these similar questions
Chapter 11 shows that increased government purchases, with taxes held constant, can eliminate a recessionary gap. How could a tax cut achieve the same result?
Suppose an economy is described by the following equations: Y = C + I + G + X – M
C = 14 + 0.60Yd
I = 20
G = 20
X = 15
M = 5 +0.1Y
T = 20 + 0.4Y
Where Y is domestic income Yd is private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending G is government spending E represents exports M represents imports of goods and services.
(a) If the equilibrium national income is less than the full-employment level of income by N$100, what should be the increase in government spending or in exports to attain the full-employment level of income?
(b) With a help of a diagram explain and discuss life cycle hypothesis.
Consider an economy described by the following equations:
Y = C+I+G
C = 100+0.75 (Y-T)
I = 500-50r
G = 125
T = 100
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000.
Explain the meaning of each of these equations.
What is the marginal propensity to consume in this economy?
Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. How does it compare to the full-employment level?
Assuming no change in monetary policy, what change in government purchases would restore full employment?
Assuming no change in fiscal policy, what change in the interest rate would restore full employment?
Chapter 27 Solutions
Economics: Principles & Policy
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