Suppose that a local economy has the following values for Desired C, I, G, and NX at a price level of 100 given by: C = 6,000 + 0.9(1 − t)Y I = 3,100 G = 900 NX = 2,000 − 0.06Y The tax rate (t) is equal to 10%. For every $1 increase in the price level, Autonomous Consumption (C) and Autonomous Investment (I) each decrease by $1. It also has an aggregate supply (AS) given by: AS = 2p 10. What is the Short-Run Real GDP in this economy? Show your work. 11. Is this economy running a primary budget surplus or a primary budget deficit? How large is it (in dollars)? Show your work. Suppose also that this government has an outstanding debt of $10,000, owed with an interest rate of 1%. 12. Is this economy running a total budget surplus or a total budget deficit? How large is it (in dollars)? What is this country’s debt-to-GDP ratio? Show your work. Suppose that the above questions (Q10 – Q11) is only for the year 2010. Assume that everything is the same (Ceteris Paribus) in 2011 and 2012 as it was in 2010, with the exception of the outstanding debt owed by the government. 13. What will be the total budget deficit in 2011? What about in 2012? Show your work.
Suppose that a local economy has the following values for Desired C, I, G, and NX at a price level of 100 given by: C = 6,000 + 0.9(1 − t)Y I = 3,100 G = 900 NX = 2,000 − 0.06Y The tax rate (t) is equal to 10%. For every $1 increase in the price level, Autonomous Consumption (C) and Autonomous Investment (I) each decrease by $1. It also has an aggregate supply (AS) given by: AS = 2p 10. What is the Short-Run Real GDP in this economy? Show your work. 11. Is this economy running a primary budget surplus or a primary budget deficit? How large is it (in dollars)? Show your work. Suppose also that this government has an outstanding debt of $10,000, owed with an interest rate of 1%. 12. Is this economy running a total budget surplus or a total budget deficit? How large is it (in dollars)? What is this country’s debt-to-GDP ratio? Show your work. Suppose that the above questions (Q10 – Q11) is only for the year 2010. Assume that everything is the same (Ceteris Paribus) in 2011 and 2012 as it was in 2010, with the exception of the outstanding debt owed by the government. 13. What will be the total budget deficit in 2011? What about in 2012? Show your work.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose that a local economy has the following values for Desired C, I, G, and NX at a price level
of 100 given by:
of 100 given by:
C = 6,000 + 0.9(1 − t)Y
I = 3,100
G = 900
NX = 2,000 − 0.06Y
The tax rate (t) is equal to 10%. For every $1 increase in the price level, Autonomous
Consumption (C) and Autonomous Investment (I) each decrease by $1.
It also has an
AS = 2p
10. What is the Short-Run Real GDP in this economy? Show your work.
11. Is this economy running a primary budget surplus or a primary budget deficit? How large
is it (in dollars)? Show your work.
Suppose also that this government has an outstanding debt of $10,000, owed with an interest
rate of 1%.
12. Is this economy running a total budget surplus or a total budget deficit? How large is it
(in dollars)? What is this country’s debt-to-GDP ratio? Show your work.
Suppose that the above questions (Q10 – Q11) is only for the year 2010. Assume that
everything is the same (Ceteris Paribus) in 2011 and 2012 as it was in 2010, with the exception
of the outstanding debt owed by the government.
13. What will be the total budget deficit in 2011? What about in 2012? Show your work.
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