a. Suppose G₁ = T₁ = 125, for all t < 10. Find the steady state (all the variables are time independent) level of output associated with these parameter values. Assume that the economy is at this steady state, for t < 10. b. At t= 10, suppose government spending increases to G₁ = 140, and remains at this level forever. There is no change in taxation. Find the steady-state output associated with this new level of government spending. C. XCalculate the equilibrium values for Y₁, for t= 10, 11, 12, 13. Calculate the path from the old equilibrium to the new equilibrium.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Consider a closed-economy aggregate expenditure model
where the current period's consumption depends on the
disposable income earned in the previous period; that is,
we have the following representation of the economy as:
C₁ = Co + C₁YD.t-1,
YD,t = Yt - Tt,
4 = Ī
Z₁ = C₁ + ₁ + G₁
Also, in equilibrium, aggregate supply equals aggregate
demand, that is Y₁= Z₁.
The parameters, cº, I, and c₁ do not change over time and
have the values c = 125, 1= 50, C₁ = 0.8.
a. Suppose G₁ = T₁ = 125, for all t < 10. Find the steady state (all the
variables are time independent) level of output associated with
these parameter values. Assume that the economy is at this steady
state, for t < 10.
b. At t = 10, suppose government spending increases to G₁ = 140,
and remains at this level forever. There is no change in taxation.
Find the steady-state output associated with this new level of
government spending.
C. XCalculate the equilibrium values for Y₁, for t= 10, 11, 12, 13.
Calculate the path from the old equilibrium to the new equilibrium.
Transcribed Image Text:Consider a closed-economy aggregate expenditure model where the current period's consumption depends on the disposable income earned in the previous period; that is, we have the following representation of the economy as: C₁ = Co + C₁YD.t-1, YD,t = Yt - Tt, 4 = Ī Z₁ = C₁ + ₁ + G₁ Also, in equilibrium, aggregate supply equals aggregate demand, that is Y₁= Z₁. The parameters, cº, I, and c₁ do not change over time and have the values c = 125, 1= 50, C₁ = 0.8. a. Suppose G₁ = T₁ = 125, for all t < 10. Find the steady state (all the variables are time independent) level of output associated with these parameter values. Assume that the economy is at this steady state, for t < 10. b. At t = 10, suppose government spending increases to G₁ = 140, and remains at this level forever. There is no change in taxation. Find the steady-state output associated with this new level of government spending. C. XCalculate the equilibrium values for Y₁, for t= 10, 11, 12, 13. Calculate the path from the old equilibrium to the new equilibrium.
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