Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. (35 marks) Consider a closed Keynesian economy and assume the economy is initially in general equilibrium. (a) (5 marks) If the government raises tax

4. (35 marks) Consider a closed Keynesian economy and assume the economy is initially in general equilibrium. (a) (5 marks) If the government raises tax to finance an increase in government spending, how would desired national saving be affected? Explain briefly and illustrate using a graph. (b) (10 marks) Use the IS-LM-FE model to explain how economy will respond to the expansionary fiscal policy in the short run and in the long run and illustrate using a graph. Now consider a Keynesian small open economy and the domestic price level is fixed initially. (c) (10 marks) In a flexible-exchange-rate system, explain briefly how the economy will respond the fiscal expansion in the short-run and in the long run and illustrate using a graph. (d) (10 marks) In a fixed-exchange-rate system, explain briefly how the economy will respond the fiscal expansion in the short-run and in the long run and illustrate using a graph.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introductory Econometrics A Modern Approach

Authors: Jeffrey Wooldridge

7th Edition

1337558869, 978-1337558860

More Books

Students also viewed these Economics questions