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 3TY
a)
To determine
The equilibrium
b)
To determine
The effect of a cut in government spending on GDP and budget deficit.
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Answer the following questions: As you know, the US government has been running budget deficits for several years now. In your opinion, and based on economic reasoning, what will happen to the US economy if the US Federal Government continues to run annual budget deficits for the next decade. Will the economy survive that? Will the economy grow? Will it grow as fast as it could? Will the deficits cause the economy to grow faster? Will it grow at all? These are some of the questions you might address in your primary post.
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The following transactions took place in Ecoland in 2018:
Trillions of 2014 dollars
Government purchases
400
Taxes
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Firms’ profits
300
Investment
400
Consumption expenditure
1000
Wages paid to labor
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Exports
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Government transfer payments
150
Imports
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(a). Calculate Ecoland’s real GDP in 2018, i.e., GDP measured in 2014 $.
(b) How much do households save in Ecoland? Is it enough to finance domestic investment?
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(d) If Ecoland’s nominal GDP in 2018 is $1900 trillion, how much inflation has Ecoland experienced since 2014?
Chapter 27 Solutions
Economics: Principles & Policy
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