Do not type in dollar signs or round any of your answers. Assume that GDP (Y) is 2000, which is also the full employment level of real GDP. Consumption (C) is given by C = 260 + 0.8(Y – T). Investment (1) is given by the %3D equation I = 400 – 50r, where r is the rate of interest in percent. Taxes (T) are 200 and government spending (G) is 200. Assume this economy produces at full employment and national savings is the only source for investment spending (closed economy). Use the data above to calculate: Consumption = Investment = ,and the %3D equilibrium rate of interest (r) = percent. Next, suppose government implements a tax cut, reducing taxes from 200 to 160, while keeping government spending at 200. Calculate new values resulting from the tax cut: The tax cut caused the equilibrium interest rate to change to percent. The change in the interest rate caused investment spending to change to leading to crowding out.

Do not type in dollar signs or round any of your answers. Assume that GDP (Y) is 2000, which is also the full employment level of real GDP. Consumption (C) is given by C = 260 + 0.8(Y – T). Investment (1) is given by the %3D equation I = 400 – 50r, where r is the rate of interest in percent. Taxes (T) are 200 and government spending (G) is 200. Assume this economy produces at full employment and national savings is the only source for investment spending (closed economy). Use the data above to calculate: Consumption = Investment = ,and the %3D equilibrium rate of interest (r) = percent. Next, suppose government implements a tax cut, reducing taxes from 200 to 160, while keeping government spending at 200. Calculate new values resulting from the tax cut: The tax cut caused the equilibrium interest rate to change to percent. The change in the interest rate caused investment spending to change to leading to crowding out.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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