Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that the economy of Country A is characterized by the following behavioral equations: Variable Consumption: Taxes: Investments: Government expenditures: Net exports: Equation C

Suppose that the economy of Country A is characterized by the following behavioral equations: Variable 

Suppose that the economy of Country A is characterized by the following behavioral equations: Variable Consumption: Taxes: Investments: Government expenditures: Net exports: Equation C = 600+ 0.7 YD T = 200 1 = 400+ 0.2 Y G = 200 NX2000.1 Y where Y denotes the real GDP and YD denotes the disposable income (YD - Y-T). Now suppose that the output gap in Country A is -1000. What should be the increase in government expenditures in order to close the gap and make the economy to reach its potential level of GDP? (Hint: Calculate the slope of aggregate expenditure line. Then, by using the value you find, calculate the value of expenditure multiplier using the formula: multiplier = 1/(1-slope of AE line). Finally, calculate the amount of change that is needed in G in order to close the output gap).

Step by Step Solution

3.26 Rating (158 Votes )

There are 3 Steps involved in it

Step: 1

The image presents a scenario where the economy of Country A is characterized by the following behav... 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_2

Step: 3

blur-text-image_3

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

Macroeconomics

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone

6th Canadian Edition

321675606, 978-0321675606

More Books

Students also viewed these Economics questions