Aggregate Supply Aggregate Demand Price Level rGDP Price level rGDP 115 620 100 660 640 120 110 650 125 660 640 120 130 680 130 630 140 700 140 620 150 712 150 610 160 722 160 600 170 730 170 590 You may find the “Centauri 2112" Excel file useful in your efforts. The AI 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. a) By how much will a 10-Cent decrease in taxes T increase Aggregate Demand? b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?. c) Which policy is a more effective way to change Aggregate Demand? 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. The Centauri Economy 180 170 160 150 Price level 140 (2099 = 100) 130 120 110 100 620 630 640 650 660 670 680 690 700 710 720 730 740 Real GDP (billions of 2099 Cents) AD -SRAS LRAS
Aggregate Supply Aggregate Demand Price Level rGDP Price level rGDP 115 620 100 660 640 120 110 650 125 660 640 120 130 680 130 630 140 700 140 620 150 712 150 610 160 722 160 600 170 730 170 590 You may find the “Centauri 2112" Excel file useful in your efforts. The AI 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. a) By how much will a 10-Cent decrease in taxes T increase Aggregate Demand? b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?. c) Which policy is a more effective way to change Aggregate Demand? 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. The Centauri Economy 180 170 160 150 Price level 140 (2099 = 100) 130 120 110 100 620 630 640 650 660 670 680 690 700 710 720 730 740 Real GDP (billions of 2099 Cents) AD -SRAS LRAS
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Aggregate Supply
Aggregate Demand
Price Level
rGDP
Price level
rGDP
115
620
100
660
640
120
110
650
125
660
640
120
130
680
130
630
140
700
140
620
150
712
150
610
160
722
160
600
170
730
170
590
You may find the “Centauri 2112" Excel file useful in your efforts.
The AI 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.
a) By how much will a 10-Cent decrease in taxes T increase Aggregate Demand?
b) By how much will a 10-Cent increase in government spending G increase Aggregate Demand?.
c) Which policy is a more effective way to change Aggregate Demand?
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.
Transcribed Image Text:The Centauri Economy
180
170
160
150
Price level
140
(2099 = 100)
130
120
110
100
620
630
640
650
660
670
680
690
700
710
720
730
740
Real GDP
(billions of 2099 Cents)
AD
-SRAS
LRAS
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