In 2018 Congress was worried that the economy was starting to overheat (i.c., the current level of real GDP was approaching or even surpassing the full-employment level of output, i.e., potential GDP). It contemplated an increase in personal taxes (.e., boosting the amount of lump sum taxes that households were to pay) in order to try to dampen any inflationary pressures that were starting to build up in the economy. The goal in changing taxes was to decrease equilibrium output by 180 billion dollars. Consider the following estimates for the U.S. economy. a (autonomous consumption expenditures) = $300 billion, b (marginal propensity to consume out of disposable income) = 0.90 T (lump sum taxes) = $50 billion; I = $350 billion, G = $250 billion, X = $40 billion, M = $45 billion C=30070.90 A) calculate the current level of equilibrium GDP. B) By how much should Congress have boosted taxes (1) if the goal was to lower equilibrium output by $180 billion? Explain in a paragraph and illustrate the effects of the policy on an AE/Y diagram. a + b(Y-To) + Ig + 6 +xm Im + br

In 2018 Congress was worried that the economy was starting to overheat (i.c., the current level of real GDP was approaching or even surpassing the full-employment level of output, i.e., potential GDP). It contemplated an increase in personal taxes (.e., boosting the amount of lump sum taxes that households were to pay) in order to try to dampen any inflationary pressures that were starting to build up in the economy. The goal in changing taxes was to decrease equilibrium output by 180 billion dollars. Consider the following estimates for the U.S. economy. a (autonomous consumption expenditures) = $300 billion, b (marginal propensity to consume out of disposable income) = 0.90 T (lump sum taxes) = $50 billion; I = $350 billion, G = $250 billion, X = $40 billion, M = $45 billion C=30070.90 A) calculate the current level of equilibrium GDP. B) By how much should Congress have boosted taxes (1) if the goal was to lower equilibrium output by $180 billion? Explain in a paragraph and illustrate the effects of the policy on an AE/Y diagram. a + b(Y-To) + Ig + 6 +xm Im + br

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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