2.

PRINT YOUR NAME (LAST) (FIRST) PART 2, MODEL II Model II is similar to Model I except that a government sector is introduced in which taxes and government consumption expenditures and gross investment are both autonomously set at 100 (G = 100, T = 100), and exports and imports are also autonomously set at 100 (X = 100, M= 100) so net exports are 0. There are no business savings, no induced investment, and no transfer payments. In this economy Ya = Y - 100; C= 60 + (9/10) Yo: 1 = 40. G = 100; X - M =0. Use this information to complete the table below, and write in answers to questions 1-5. Note even though the government sector introduced in Model II has a "balanced" budget T = (G + Tr), the equilibrium is different from the equilibrium in Model I. Can you explain this? (1 not, see HW #20 below.) Total Output (GDP) Total Demand C G X-M C+1 +G+(X -M 800 700 890 40 100 830 900 800 780 40 100 920 1000 900 870 1010 1100 1200 1100 1050 100 1190 1. Equilibrium GDP (Y) for Model II is bocause: 2. Algebraic solution for equilibrium GDP (Y) in Model II. (Show your work). You know that Ya = Y - 100 in this model and that, in this model, equilibrium is where Y = C + 1 +G- (X - Mi. so: Y - 60 + (9/10) Ya + 40 + 100 - (100 - 100) Y = 60 + (9/10) (Y - 100) . 40 - 100 - (100 - 100) Y = 60 - (9/10) Y - 90 + 40 - 100 Y = 110+(9/10] Y Y= 3. Show how you calculate the multiplier for Model il. 4. If you wanted the equilibrium value of GDP to move to 1200 in Model II, It would be necessary to change autonomous spending (the constant in the equation Y = 110 - (9/10) Y) to This is a change of from its previous value. 5 If you wanted the equilibrium value of GDP (Y) to move to 500 in Model Il, it would be necessary to change autonomous spending (the constant in the equation Y = 110 + (9/10) Y) to This is a change of from its previous value. 140