Exercise 1:

The government of a country needs to increase production "Y" from Y=3000 to Y=5000, for which the Ministry of Finance proposes two possible fiscal policy alternatives: 1. Increase the salaries of teachers in municipal and subsidized schools, which implies an increase in public spending (G). 2. Reduce indirect taxes (To) on books, magazines and newspapers.

use this INFORMATION TO GIVE YOUR ANSWER, CONSIDER THE EQUATION Y=C+I+G

FOR THE TWO ALTERNATIVES

DATA:

c=0.8 t=0.2 I = io C = Co +cYd

1. Analyze and indicate, which of the two policy proposals is the most convenient for the state to apply? explain. 2. Graph to justify your answer.