Suppose we have an economy described by the following equations C 100 0 75( Y T ) T 55 0 25 Y 425 425 75 where C represents consumption spending Y is income T is total taxes I is investment spending G is government spending and NX is net exports Calculate the Keynesian multiplier and the equilibrium level of income in this model Draw a diagram to depict this equilibrium Calculate the output gap (as a percentage), the budget surplus, and the full employment budget surplus if potential output is 2650 Now assume that autonomous consumption falls to 90 What happens to the output gap, the budget surplus, and the full employment budget surplus Explain what has caused these changes If the Government wanted to use fiscal policy to bring equilibrium income back to its initial level, but only wanted to use one fiscal instrument to achieve this outcome, which would be the most efficient instrument to use (in the sense of having the biggest impact for a given change in the instrument), and how much should that instrument be changed Carefully explain your answer How would I tackle this kind of question Can you please explain what to do step by step for the above questions, especially with the calculations and part 4 Thanks 3 )

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Posted on Jun 25, 2024

Suppose we have an economy described by the following equations: C = 100 + 0.75( Y T ) T =55 + 0.25 Y = 425;

Suppose we have an economy described by the following equations:

C= 100 + 0.75(YT)

T=55 + 0.25Y

= 425; = 425; = 75

where:Crepresents consumption spending;Yis income;Tis total taxes;Iis investment spending;Gis government spending; andNXis net exports.

Calculate the Keynesian multiplier and the equilibrium level of income in this model. Draw a diagram to depict this equilibrium.
Calculate the output gap (as a percentage), the budget surplus, and the full employment budget surplus if potential output is 2650.
Now assume that autonomous consumption falls to 90. What happens to the output gap, the budget surplus, and the full employment budget surplus? Explain what has caused these changes.
If the Government wanted to use fiscal policy to bring equilibrium income back to its initial level, but only wanted to useonefiscal instrument to achieve this outcome, which would be the most efficient instrument to use (in the sense of having the biggest impact for a given change in the instrument), and how much should that instrument be changed? Carefully explain your answer.

How would I tackle this kind of question? Can you please explain what to do step by step for the above questions, especially with the calculations and part 4.

Thanks! <3 :)