1.Explain the concept of Automatic stabilizer, using the tax system as an example.2.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?3.Consider an economy described by the following equation:Y=C+Ig+G C=300+0.75(Y−T) Ig=700−12r G=250T=200where Y is the real GDP, C is the total consumption, Ig is the gross investment, G is thegovernment purchases, T is income taxes, and r is the real interest rate. Suppose r is real interest rate(in percent) = 10% 3.1 If income is equal to zero, what would be the level of consumption in this economy?
1.Explain the concept of Automatic stabilizer, using the tax system as an example.
2.Gomad is a small economy operating with output that is $40 million below its natural level. Assume there is no crowding-out effect and the price level is completely fixed in the short run, how much government spending does the fiscal policymakers need to change to close this recessionary gap if MPC is 0.8?
3.Consider an economy described by the following equation:
Y=C+Ig+G C=300+0.75(Y−T) Ig=700−12r G=250
T=200
where Y is the real GDP, C is the total consumption, Ig is the gross investment, G is the
government purchases, T is income taxes, and r is the real interest rate. Suppose r is real interest rate(in percent) = 10%
3.1 If income is equal to zero, what would be the level of consumption in this economy?
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