Exercise 5. There are observed following behavioral equations in the economy: C = Co + c(Y-T) 1 = 1₁ - WR G = Go T = To where: Co > 0, 1o > 0, Go > 0, To > 0, c E (0; 1), w > 0. Solve following problems: a) Find IS Curve b) Present graphically how change in government spending affects economy c) Present graphically how change in autonomous tax affects economy d) There is budget deficit in the economy. Government is able to reduce deficit either by increasing taxes or by reducing government spending. Explain, which instrument should be used to reduce budget deficit? e) Government is able to change either taxes or government spending. Which instrument should be used if government tends to increase aggregate income?

Exercise 5. There are observed following behavioral equations in the economy: C = Co + c(Y-T) 1 = 1₁ - WR G = Go T = To where: Co > 0, 1o > 0, Go > 0, To > 0, c E (0; 1), w > 0. Solve following problems: a) Find IS Curve b) Present graphically how change in government spending affects economy c) Present graphically how change in autonomous tax affects economy d) There is budget deficit in the economy. Government is able to reduce deficit either by increasing taxes or by reducing government spending. Explain, which instrument should be used to reduce budget deficit? e) Government is able to change either taxes or government spending. Which instrument should be used if government tends to increase aggregate income?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

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

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 4CQ

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