Question
Consider a mathematical model of the macro economy, like the one I presented in the lecture videos on fiscal policy. As a reminder, the basic
Consider a mathematical model of the macro economy, like the one I presented in the lecture videos on fiscal policy. As a reminder, the basic form of such a model is: Y = C + I + G + NE. Now, let's say we have the following parameters (note: this is a model that takes into account taxes).
a = 100
MPC = 0.8
I = 200
NE = 140
In addition, suppose that we are in a recession and we want to get out of it. We want to set government spending such that we reach Y = 3000. But we also want to keep a balanced budget, so we will set taxes accordingly. Calculate the G and T that will give us Y = 3000 with a balanced budget. Don't just write the final result, show your work!
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