2. Assume that in 2011, the following prevails in the Republic of Nurd: Y = $200 G - $o a C = $160 T- $0 S- $40 I (planned) = $30 Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = .8, and MPS = .2. That is, C = .8Yd and S =.2Yd. d. Suppose Y = $200, C = S160, S = $40, and I = S40. Is Nurd's economy in equilibrium? e. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxation and continues to spend $30 every period. If I remains constant, what will happen to the equilibrium level of Nurd's domestic product (Y)? What will the new levels of C and S be? %3D %3D %3D f. Starting with the situation in part d, suppose the government starts taxing the population $30 each year without spending anything and continues to tax at that rate every period. If I remains constant, what will happen to the equilibrium level of Nurd's domestic product (Y)? What will be the new levels of C and S? How does your answer to part f differ from your answer to part e? Why?
2. Assume that in 2011, the following prevails in the Republic of Nurd: Y = $200 G - $o a C = $160 T- $0 S- $40 I (planned) = $30 Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = .8, and MPS = .2. That is, C = .8Yd and S =.2Yd. d. Suppose Y = $200, C = S160, S = $40, and I = S40. Is Nurd's economy in equilibrium? e. Starting with the situation in part d, suppose the government starts spending $30 each year with no taxation and continues to spend $30 every period. If I remains constant, what will happen to the equilibrium level of Nurd's domestic product (Y)? What will the new levels of C and S be? %3D %3D %3D f. Starting with the situation in part d, suppose the government starts taxing the population $30 each year without spending anything and continues to tax at that rate every period. If I remains constant, what will happen to the equilibrium level of Nurd's domestic product (Y)? What will be the new levels of C and S? How does your answer to part f differ from your answer to part e? Why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:2. Assume that in 2011, the following prevails in the Republic of Nurd:
Y = $200 G - $o a
C = $160 T- $0
S- $40
I (planned) = $30
Assume that households consume 80 percent of their income, they save 20 percent of
their income, MPC = .8, and MPS = .2. That is, C = .8Yd and S =.2Yd.
d. Suppose Y = $200, C = S160, S = $40, and I = S40. Is Nurd's economy in
equilibrium?
e. Starting with the situation in part d, suppose the government starts spending $30
each year with no taxation and continues to spend $30 every period. If I remains
constant, what will happen to the equilibrium level of Nurd's domestic product (Y)?
What will the new levels of C and S be?
%3D
%3D
%3D
f. Starting with the situation in part d, suppose the government starts taxing the
population $30 each year without spending anything and continues to tax at that rate
every period. If I remains constant, what will happen to the equilibrium level of
Nurd's domestic product (Y)? What will be the new levels of C and S? How does
your answer to part f differ from your answer to part e? Why?
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