Fiscal and Monetary Policy in the Growth Model Additional Homework ProblemsECON 3133 Dr. Keen Answers 1.Y/Y= C/Y + I/Y+ G/Y. I/Y= – 0.02R. a. Y/Y= C/Y+ I/Y+ G/Y= 1.0. Since C/Ydoes not depend on R, I/Ymust adjust enough to offset the fall in G/Y. Therefore I/Ymust rise by 4% of GDP from its original level. b. Since I/Yrises by 2% for every 1% decrease in R, it is necessary for R to fall by 2%. 2. a. 1000 = [0.3×(4000) – 4000(0.05)]×P= (1200 – 200)×P P = 1. b. 1100 = 1000P 1.1 = P. 10 % change in Mand P. c. 1000 = [1200 – 4000(0.10)]×P P = 1000/800 P = 1.25 d. 1000 = [0.3×(4500) – 200]×P P = 1000/1150 P = 0.87. 3. a. Output increases due to increased labor input. b.Output increases due to improvement in technology. c.Output is unchanged; only price level changes. d.Output is unchanged initially, but Ccrowds out some I4. a. Both the investment spending and nongovernment spending schedules shift down. b.If no other spending component were related to R, then Rwould fall enough to restore investmentto its original level. c.If net exports vary negatively with investment, then the decline in R will push up both investment and net exports.