# ps_ch21 - Problem Set For Chapter 21 The Government and The...

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Problem Set For Chapter 21 The Government and The Fiscal Policy 1) Assume a simple closed economy macro model: (1) AE=C+I+G (2) C=200+0.80Y d (3) I=100 (4) G=280 (5) T=100 (6) Y=AE a) Interpret the above equations. b) Find the equilibrium level of income (or real GDP). Depict your results on an appropriate diagram. c) Find the government spending and tax multipliers for this economy and interpret them. d) Find the effect on equilibrium level of income of a change in the level of government spending from 280 to 330. Depict your results on an appropriate diagram. e) Find the effect on equilibrium level of income of a change in the level of T (net taxes) from 100 to 200. 2) Assume that in 1998, the following prevails in the Republic of Nurd: Y = \$200 C = \$160 S = \$40 I (planned) = \$30 G = \$0 T = \$0 Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0,8, and MPS = 0,2. That is, C = 0,8Y d and S = 0,2 Y d .

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a) Is the economy of Nurd in equilibrium? What is Nurd’s equilibrium level of income?
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ps_ch21 - Problem Set For Chapter 21 The Government and The...

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