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section6 - Econ 100B Section 101 102 Summer 2009 UC...

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Econ 100B Section 101 & 102 Summer 2009 – UC Berkeley Phakawa On Jeasakul July 20, 2009 Practice Problems 1. Consider an economy described by the following equations: Y = C + I + G , C = 1000 + 0.5( Y T ), I = 2,500 100 r , G = 1,000, T = 1,000. a. Based on the information available above, can we determine the value of output Y ? How does this differ from the Investment and Saving model in the Classical Economics? b. Now, assume that r = 8. Can we determine the value of output Y ? c. Continue assuming that r = 8. What is the value of output Y when G = 1,500? Do we have a multiplying effect on output due to an increase in government spending? d. In contrast to part c, what is the value of output Y when T = 500? Do we have a multiplying effect on output due to a reduction in taxes? e. If the government attempts to keep the government budget unchanged, while changing both government spending and taxes as in part c and d. Does this government action have any effect on output? 2. (Mankiw 10.4) Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose
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