Ch.16. Fiscal Policy

1. Show the impact of tax reduction and simplication using the dynamic aggregate demand and aggregate supply model. Clearly show and identify the impact of the tax change. Assume that aggregate demand and short-run ag- gregate supply shift as they typically do in the dynamic model. Show what happens to the price level and real GDP because of the tax change.

2. In 2012, the ratio of imports to GDP was 14 percent in Japan and 83 percent in Belgium. On the basis of this information, can you draw any conclusion about the relative sizes of the government purchases multiplier in each country?

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