You are given the following information about an economy: C = 0.90DI I = 100 G= 540

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You are given the following information about an economy:

C = 0.90DI

I = 100

G= 540

(X- IM) = -40

T = -1⁄3 Y

a. Find equilibrium GDP and the budget deficit.

b. Suppose the government, unhappy with the budget deficit, decides to cut government spending by precisely the amount of the deficit you just found. What actually happens to GDP and the budget deficit, and why?

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Macroeconomics Principles And Policy

ISBN: 9780324586213

11th Edition

Authors: William J. Baumol, Alan S. Blinder

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Question Posted: Sep 01, 2012 02:47 AM

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You are given the following information about an economy: C = 0.90DI I = 100 G= 540

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a Y C I G X IM C 09Y T C 09Y 13Y C 0923Y C 06Y Y 06Y 100 540 40 Y 06Y 600 04Y ...View the full answer

Macroeconomics Principles And Policy

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