Use #21 to answer #23 21. Given the following macroeconomic data of a hypothetic economy:C = 175 + 0.75(DI)| = 50G = 35X = 30M = 45%DT= 35%3D 23. Using the macroeconomic data in #21 above and assuming a full employmenteconomic output of $800. The federal government should _ (increase or decrease) taxesin the amount ofto close up such gap.increase ; $25cannot be computed based on information providedincrease ; $100decrease ; $100decrease ; $25

Answer in Step 221. GDP=Y=C+I+G+ (X-M) D=Y-T Therefore, DI=C+I+G+ (X-M) - T DI = 175 +0.75(DI) +50 + 35+ (30-45) - 35 DI = 210 +0.75(DI) 0.25DI = 210 DI=840 Which means, GDP = Y = 175 +0.75(DI) +50 +35+ (30-45) GDP = Y = 175 +0.75(840) + 50+ 35-15 GDP = Y = 175 + 630 + 50 + 35-15 GDP=Y=875 The GDP of the hypothetical economy is 875. 23. Output Gap, AY=875-800 = 75 Tax Multiplier = mpc/ (1 - mpc) = 0.75/(1-0.75) = 0.75/0.25 = 3 We know, Tax Multiplier = ∆Y/∆T => AT = 75/3 = 25 To decrease output to 800, the federal government should increase taxes in the amount of 25 to close up such gap. Hence, the correct option is (a). increase ; $25

Answered: 21. Given the following macroeconomic…

Business

Economics

21. Given the following macroeconomic data of a hypothetic economy: C = 175 + 0.75(DI) %3D | = 50 G = 35 X = 30 M = 45 T = 35 %D %D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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