QUESTION 4 Consider an economy with the following characteristics (all variables measured in billions of dollars). C = 80 +0.4Yd t = 0.25 I= 15 G = 20 X=5 M = 0.1Y where yd is disposable income and t is the income tax rate. (a) Calculate the equilibrium GDP. (b) At the equilibrium GDP, calculate the fiscal balance. (c) If the full employment GDP is $80 billion, is the economy experiencing a recessionary or inflationary gap? Explain your answer. (d) If the government wants to close the gap, should government increase or decrease expenditure? By how much?
QUESTION 4 Consider an economy with the following characteristics (all variables measured in billions of dollars). C = 80 +0.4Yd t = 0.25 I= 15 G = 20 X=5 M = 0.1Y where yd is disposable income and t is the income tax rate. (a) Calculate the equilibrium GDP. (b) At the equilibrium GDP, calculate the fiscal balance. (c) If the full employment GDP is $80 billion, is the economy experiencing a recessionary or inflationary gap? Explain your answer. (d) If the government wants to close the gap, should government increase or decrease expenditure? By how much?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
part C D
i need in words
not handwritten solution please
Transcribed Image Text:QUESTION 4
Consider an economy with the following characteristics (all variables measured in billions of
dollars).
C = 80+ 0.4Yd
t = 0.25
I= 15
G = 20
X = 5
M = 0.1Y
where yd is disposable income and t is the income tax rate.
(a)
Calculate the equilibrium GDP.
(b)
At the equilibrium GDP, calculate the fiscal balance.
(c)
If the full employment GDP is $80 billion, is the economy experiencing a recessionary
or inflationary gap? Explain your answer.
(d)
If the government wants to close the gap, should government increase or decrease
expenditure? By how much?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education