3. Suppose an economy is represented by the following equations. Consumption function C= 200 + 0.8Yd Planned investment I= 400 Government spending G= 600 Exports EX= 200 Imports IM = 0.1Yd Autonomous Taxes T= 500 Marginal Tax Rate t=0.2 Planned aggregate expenditure AE = C+I+G+ (EX - IM) By using the above information calculate the equilibrium level of income for this economy and explain why fiscal policy becomes less effective in an open economy

Consider the following equations that describe an open economy with government, where government transfers equal $0. C = 320 + 0.6YD I = 936 Budget Balance 0.2Y - 534 NX = 712-0.08Y Part a: Determine the equilibrium level of GDP. Part b: Suppose potential GDP is 4,000 (Y*). Determine the value of G2 if the goal is to stabilize the economy by restoring equilibrium GDP to its potential level. Verify that you have the correct value for G2 by solving for the equilibrium GDP. Part c: How has the magnitude of the multiplier and the AE curve changed because of the changes to government spending? Use 2 to 3 sentences to provide an explanation that supports your answer. Part d: Government spending returns to Gị and the government wants to achieve potential GDP by altering the tax rate (t). Determine the value of t2 that will restore Y = Y*. Verify that you have the correct value for t2 by solving for the equilibrium GDP. Part e: How has the magnitude of the multiplier and the AE curve changed…

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1. The following is information for the economy of Texas, where taxes are wholly autonomous: C = 40 + 0.8YD where YD = (Y – T) G = T = 360 I = 120 XN = 107 – 0.1Y a. What is the value of equilibrium income? b. At equilibrium, what is the amount of budget deficit or budget surplus?  c. If government increased both its spending and taxes by $60, what would be the new equilibrium income?

The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by 110 billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.05. Suppose the crowding-out effect is twice the amount of government spending, what is the change in output caused by the stimulus package of 110 billion in a closed economy? Number

8. Agreement and disagreement among economists Suppose that Kevin, an economist from a consulting firm, and Maria, another economist from a graduate program in the Northeast, are both guests a popular science podcast. The host of the podcast is facilitating their debate over budget deficits. The following dialogue represents a portion of the transcript of their discussion: Maria: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation. Kevin: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits. Maria: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively. The disagreement between these economists is most likely due to Despite their differences, with which proposition are two economists chosen at random most likely to agree? Central banks should focus more on…

if investment spending at each level of output increases by $120 billion, what will equilibrium output and income be?

8. Agreement and disagreement among economists Suppose that Larry, an economist from a college in Pennsylvania, and Megan, another economist from an investigative reporting group, are both guests on a popular science podcast. The host of the podcast is facilitating their debate over budget deficits. The following dialogue represents a portion of the transcript of their discussion: Megan: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation. Larry: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits.. Megan: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively. The disagreement between these economists is most likely due to differences between perception versus reality Despite their differences, with which proposition are two economists chosen at random most…

Assume the following to answer the following questions:  C= 1000+ .9 (Y-T) Tax rate = 0.1Y Imports = 0.1(Y-T) Government spending = 200 Investment = 300 Exports = 600 Potential Output = $8000 By how much must government spending increase or decrease to close this gap and bring the economy to Potential Output? Show your work

17 The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 40 20 0 (40, 100) Fiscal Policy LRAS प्रै ======= AD₁ billion AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) $| Suppose instead that the MPC is 0.5. AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.