2) It is the year 2112. The Solar Federation has recently established its first interstellar colony on the planet Centauri. The planet has the atmosphere and resources to support life they just need labor to produce output and money (called the “Cent," after Centauri) to keep track of transactions. Things were rolling along nicely until the newly clected Chancellor of the Solar Federation signed legislation declaring the Centauri currency void as legal tender and shutting down all investment activity on Centauri. Thus was an enormous chunk of Centauri citizens' wealth vaporized. You have been hired by the Centauri government to help resolve the resulting planet-wide depression. Good thing you'll take an IOU. The following table describes the current state of the Centauri economy: Aggregate Supply Price Level Aggregate Demand Price level rGDP rGDP 115 620 100 660 120 640 110 650 125 660 120 640 130 680 130 630 140 700 140 620 150 712 150 610 722 160 160 600 170 730 170 590 Youmay find thre "Eentmeri 212"Exoel filewefut in your efforts- The Al that runs your actuarial department has calculated that, at any price level, Centauri's aggregate demand has the equation AD = 0.75(Y – T) + G, where Y is real GDP, T is total taxes, I is investment and G is government spending. Everything is measured in billions of 2099 Cents (denoted C). The government reports that taxes are T = 60 and government expenditures are G = 205. By how much will a 10-Cent decrease in taxes T increase Aggregate Demand? a) b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?. Which policy is a more effective way to change Aggregate Demand? c) d) Determine a policy that will return the Centauri economy to its long-run equilibrium. That is, figure out a combination of changes to taxes and government spending that gets AD back to 700. For now, ignore what will happen to the price level.
2) It is the year 2112. The Solar Federation has recently established its first interstellar colony on the planet Centauri. The planet has the atmosphere and resources to support life they just need labor to produce output and money (called the “Cent," after Centauri) to keep track of transactions. Things were rolling along nicely until the newly clected Chancellor of the Solar Federation signed legislation declaring the Centauri currency void as legal tender and shutting down all investment activity on Centauri. Thus was an enormous chunk of Centauri citizens' wealth vaporized. You have been hired by the Centauri government to help resolve the resulting planet-wide depression. Good thing you'll take an IOU. The following table describes the current state of the Centauri economy: Aggregate Supply Price Level Aggregate Demand Price level rGDP rGDP 115 620 100 660 120 640 110 650 125 660 120 640 130 680 130 630 140 700 140 620 150 712 150 610 722 160 160 600 170 730 170 590 Youmay find thre "Eentmeri 212"Exoel filewefut in your efforts- The Al that runs your actuarial department has calculated that, at any price level, Centauri's aggregate demand has the equation AD = 0.75(Y – T) + G, where Y is real GDP, T is total taxes, I is investment and G is government spending. Everything is measured in billions of 2099 Cents (denoted C). The government reports that taxes are T = 60 and government expenditures are G = 205. By how much will a 10-Cent decrease in taxes T increase Aggregate Demand? a) b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?. Which policy is a more effective way to change Aggregate Demand? c) d) Determine a policy that will return the Centauri economy to its long-run equilibrium. That is, figure out a combination of changes to taxes and government spending that gets AD back to 700. For now, ignore what will happen to the price level.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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c) and d) please
Transcribed Image Text:2) It is the year 2112. The Solar Federation has recently established its first interstellar colony on the
planet Centauri. The planet has the atmosphere and resources to support life they just need labor to
produce output and money (called the “Cent," after Centauri) to keep track of transactions. Things
were rolling along nicely until the newly clected Chancellor of the Solar Federation signed legislation
declaring the Centauri currency void as legal tender and shutting down all investment activity on
Centauri. Thus was an enormous chunk of Centauri citizens' wealth vaporized.
You have been hired by the Centauri government to help resolve the resulting planet-wide depression.
Good thing you'll take an IOU.
The following table describes the current state of the Centauri economy:
Aggregate Supply
Price Level
Aggregate Demand
Price level
rGDP
rGDP
115
620
100
660
120
640
110
650
125
660
120
640
130
680
130
630
140
700
140
620
150
712
150
610
722
160
160
600
170
730
170
590
Youmay find thre "Eentmeri 212"Exoel filewefut in your efforts-
The Al that runs your actuarial department has calculated that, at any price level, Centauri's aggregate
demand has the equation AD = 0.75(Y – T) + G, where Y is real GDP, T is total taxes, I is investment and
G is government spending. Everything is measured in billions of 2099 Cents (denoted C). The
government reports that taxes are T = 60 and government expenditures are G = 205.
By how much will a 10-Cent decrease in taxes T increase Aggregate Demand?
a)
b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?.
Which policy is a more effective way to change Aggregate Demand?
c)
d)
Determine a policy that will return the Centauri economy to its long-run equilibrium. That is,
figure out a combination of changes to taxes and government spending that gets AD back to 700.
For now, ignore what will happen to the price level.
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