PROBLEM SET 5 1. Suppose that in the land of Dyspepsia, autonomous consumption is 50 billion dollars and the marginal propensity to consume is 0.92. The tax system has a lump-sum tax of 25 billion dollars and a at-rate income tax of 24 percent. Autonomous imports are 70 billion dollars and the marginal propensity to import is 0.1. Government spending is 600 billion, exports are 700 billion, and investment is 400 billion. The President, Ignoramus Cloaca, decides to withdraw Dyspepsia from all of its trade treaties, so exports fall by half. A. Calculate GDP before the change in exports. Write down the formulas you use and show your calculations . B. What is the value of the export multiplier? Write down the formulas you use and show your calculations . C. What is the value of GDP after the change in exports? Write down the formulas you use and show your calculations. D. How much would the government have to change lump-sum taxes to keep GDP the same as before the change in exports? Write down the formulas you use and show your calculations. E. How much would the government have to change the tax rate to keep GDP the same as before the change in exports? Write down the formulas you use and show your calculations. 2. The March 29, 2018 Wall Street Journal article \"State Budgets Face Historic Squeeze\" discusses the stresses on state and local budgets and how these governments are coping. We can use this information to think about the economic impacts of their decisions. A. What are the two big factors that are driving the problems in state budgets, according to the article, and why? B. What expenditures are states cutting in order to keep their budgets in balance, according to the article? Show and explain what effects on GDP and the price level these cuts are likely to have in the medium and long nms