EBK MICROECONOMICS
21st Edition
ISBN: 8220103960151
Author: McConnell
Publisher: YUZU
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Chapter 8, Problem 5DQ
To determine
Define examples for cognitive biases.
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Answer the given question with a proper explanation and step-by-step solution.
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Exercise 5.
There are observed following behavioral equations in the economy:
C = Co + c(Y-T)
1 = 1o - WR
G = Go
T = To
where: Co > 0, lo > 0, Go > 0, To > 0, ce (0; 1), w > 0. Solve following problems:
a) Find IS Curve
b) Present graphically how change in government spending affects economy
c) Present graphically how change in autonomous tax affects economy
d) There is budget deficit in the economy. Government is able to reduce deficit either by
increasing taxes or by reducing government spending. Explain, which instrument should
be used to reduce budget deficit?
e) Government is able to change either taxes or government spending. Which instrument
should be used if government tends to increase aggregate income?
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