1. Consider an economy with the following situation:C = 50 +0.8 Yd =100;T= 100G =150a. Solve for Y, C, Sb. How much is investment and government multiplier? Taxmultiplier?c. Suppose full employment income is 900. Is this an inflationary ordeflationary gap? How much is the gap?d. To eliminate the gap, the government decides to change itsexpenditure G. By how much should G change? Show that incomeAE or Ye is now 900 after the change in G.e. If the government decides to adopt balanced budget spending, byhow much G and T will change to reach full employment output orincome?

Aggregate expenditure is the sum of consumption, investment and government purchases. AE = C + I +…

Consider an economy with the following situation: C = 50 +0.8 YdI =100;T = 100 G =150 a. Solve for Y, C, S b. How much is investment and government multiplier? Tax multiplier? c. Suppose full employment income is 900. Is this an inflationary or deflationary gap? How much is the gap?

Consider an economy with the following situation: C = 50 +0.8 YdI =100;T = 100 G =150 a. Solve for Y, C, S b. How much is investment and government multiplier? Tax multiplier? c. Suppose full employment income is 900. Is this an inflationary or deflationary gap? How much is the gap?

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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Question

1. Consider an economy with the following situation:
C = 50 +0.8 Yd =100;T= 100
G =150
a. Solve for Y, C, S
b. How much is investment and government multiplier? Tax
multiplier?
c. Suppose full employment income is 900. Is this an inflationary or
deflationary gap? How much is the gap?
d. To eliminate the gap, the government decides to change its
expenditure G. By how much should G change? Show that income
AE or Ye is now 900 after the change in G.
e. If the government decides to adopt balanced budget spending, by
how much G and T will change to reach full employment output or
income?

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