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Question 2 The country of OZ is closed to international trade. Its economy can be described by the following equations. C = 200 + 0.6(Y

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Question 2 The country of OZ is closed to international trade. Its economy can be described by the following equations. C = 200 + 0.6(Y - T) TP = 80 G = 120 T = 50 + 04Y (a) Calculate equilibrium GDP. (Y = 578.125) (b) Calculate equilibrium consumption and tax receipts (C' =378.125, T' = 281.25) (c) What is the size of the budget balance in equilibrium? (BB* = 161.25) (d) What is the magnitude of the government expenditure multiplier in OZ? (1.5625) (e) In the two-sector model we could write the condition for equi- librium in terms of saving and planned investment. What would be the analogous condition for equilibrium in OZ? Check that it gives you the same value for equilibrium GDP as in part (a)- (S+ T = !' + G)

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