Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer Question 2 (15 marks) Assume a simple closed economy, with an MP0 equal to 0.75. The government has recently had to implement an

please answer

image text in transcribed
Question 2 (15 marks) Assume a simple closed economy, with an MP0 equal to 0.75. The government has recently had to implement an amendment to its' balanced budget. As a result, the economy contracts and goes into a recession. Therefore, the government increases spending by US$100 million in order to stimulate the economy- a) Calculate the change in output (AY) from the increase in government spending (AG). (6 marks) b) The balanced budget amendment requires the government to also raise taxes by US$100 million. Calculate the change in output (AY) from the tax hike. (3 marks) 6) What is the net effect on output from these two policies? Was there any expansionary effect? Explain your working and answer in words. (3 marks) d) Whyr is a balanced budget amendment problematic or undesirable

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

More Books

Students also viewed these Economics questions