In the simple model with lump-sum tax T, how much is the impact to equilibrium Y* income in the goods market if government increases its purchases by the same amount by which it increases its lump-sum tax imposed to households (e.g., AT = AG)? Show solution and briefly explain answer.
In the simple model with lump-sum tax T, how much is the impact to equilibrium Y* income in the goods market if government increases its purchases by the same amount by which it increases its lump-sum tax imposed to households (e.g., AT = AG)? Show solution and briefly explain answer.
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter12: Fiscal Policy, Incentives, And Secondary Effects
Section: Chapter Questions
Problem 12CQ
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Transcribed Image Text:2. In the simple model with lump-sum tax T, how much is the impact to equilibrium Y* income in
the goods market if government increases its purchases by the same amount by which it increases
its lump-sum tax imposed to households (e.g., AT = AG)? Show solution and briefly explain
answer.
Transcribed Image Text:3. Given the following real money demand equation
a.
d
= 2500 - 150r
S
What is the equilibrium interest rate if real money supply () = 1200. Think of r as the
interest rate already (e.g., r = 5 means 5% interest rate). No need to multiply to 100.
What is the new interest rate if real money supply decreases to
b.
= 1000.
c. Given your answer in letter (b), what will happen to the level of investment,/ in the economy
once the real money supply decline Will it increase or decrease? Explain why.
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