Assume economy of Germany has high inflation. To rain inflation and achieve the potential GDP Germany raises taxes on its citizens by €500 billion. Furthermore, assume that Germans save 25% of the change in their disposable income. 1. Calculate the effect the €500 billion change in taxes on the German GDP. 2. If actual GDP is €10000, then how much is potential GDP? 3. If instead of raising taxes, German Government decides to decrease government purchases, compute the necessary change in purchases.

Assume economy of Germany has high inflation. To rain inflation and achieve the potential GDP Germany raises taxes on its citizens by €500 billion. Furthermore, assume that Germans save 25% of the change in their disposable income. 1. Calculate the effect the €500 billion change in taxes on the German GDP. 2. If actual GDP is €10000, then how much is potential GDP? 3. If instead of raising taxes, German Government decides to decrease government purchases, compute the necessary change in purchases.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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