Question 7 (10 points)

LONG-RUN MODEL OF THE ECONOMY (10 POINTS) The closed economy of Classicland was in 2006 in its LONG-RUN EQUILIBRIUM. Classicland has the following information for the year 2006 related to GDP (in billions of dollars):

Variable	Amount
Total Output (GDP)	2,000
Consumption	1,400
Planned Investment	200
Changes in inventories	0
Government transfer payments	100
Government purchases	400
Taxes	180

Calculate the value of the following macroeconomic variables: REMEMBER: for simplicity we assume that total output is equal to total income. - Total Income: __________ - Potential Output: __________ - Total investment: ___________ - Total Spending (C+I+G): __________ - Net taxes (T) (taxes - transfers): _________ - Disposable Income (total income-T): __________ - Private Saving (S) (Disposable income- C): ________ - Total injections (I+G): ________ - Total leakages (S+T): ________ - Government budget deficit (G-T): _________

Your answer:

Question 8 (10 points)

ECONOMIC GROWTH (10 POINTS) The government wants to encourage technological innovation all across the US. The government thinks that with better technology, the US economy could become again the greatest economic power by far. What would you do in order to encourage firms and/or households to invent/develop new technologies that would help produce more output (and thus create more employment)? State THREE (03) possible ways (policies) to encourage technological innovation. List them: 1, 2, and 3. BE SPECIFIC ON YOUR RECOMMENDED POLICIES. EXPLAIN EACH OF YOUR PROPOSED POLICIES USING THE SPACE BELOW.

Your answer: