Practice_Problems_for_Test_IV

# Practice_Problems_for_Test_IV - What is the value of...

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Practice Problems for Test IV Q1 The Freedonian economy is characterized by the following information: C = 30 + 0.75(Y - T); I = 200; G = 250; T = 200; EX = 150; IM = 175. All figures are in billions of dollars/year. a. What is the value of the Simple Keynesian Multiplier in Freedonia? b. Calculate the value of equilibrium national income (i.e., Y) in Freedonia using the information above. c. If Y* (full employment national income) is at \$1300B/yr; what is the size and type of GDP gap in this economy? d. What is the current value of national savings in Freedonia? e. Calculate the change in Taxes needed to restore the Freedonian economy to full employment. f. What is the state of the Freedonian Budget Balance after the tax change in part e? Q2. Suppose that in a different economy, C = 2,600 + 0.8Y D - 10,000r; I = 2,000 - 10,000r; G = 1,800; T = 3,000; EX = 975; IM = 975; and r = 0.10. a.
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Unformatted text preview: What is the value of equilibrium national income in this country? b. By how much would the Fed in this country have to change the real interest rate if it wanted to use monetary policy to achieve a Y* of \$9,000? Q3. The Ruritanian economy is currently characterized by the following information. Potential (i.e., full employment) GDP is \$800 billion/year, real GDP is \$848 billion/year, the natural rate of unemployment (i.e. full employment) is at 4% unemployment and the current price level is 100. a. Draw an AD-AS diagram of the Ruritanian economy using the information that you have been provided. b. Determine the size and type of GDP gap in Ruritania. c. Using Okun's Law, determine the current (i.e., actual) level of unemployment in Ruritania? d. If last year the Ruritanian GDP was \$820 billion, calculate the year-on-year GDP growth rate in Ruritania....
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