Knapp5 - WEEK5

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
WEEK 5 CH9, Q1 – You are appointed secretary of the treasury of a recently independent country called  Rugaria.  The currency of Rugaria is the lav.  The new nation began fiscal operations this year,  and the budget situation is that the government will spend 10 million lavs and taxes will be 9  million lavs.  The 1-million-lav difference will be borrowed from the public by selling 10-year  government bonds paying 5 percent interest.  The interest on the outstanding bonds must be  added to spending each year, and we assume that additional taxes are raised to cover that  interest.  Assuming that the budget stays the same except for the interest on the debt for 10  years, what will be the accumulated debt?   10.5 million lavs   What will the size of the budget be  after 10 years?   10 million lavs CH9, Q7 – Assume that in 2008, the following prevails in the Republic of Nurd: Y = $200 I (planned) = $30  G = $0 C = $160 S = $40 T = $0 Assume that households consume 80 percent of their income, they save 20 percent of their  income, MPC = .8, and MPS = .2.  That is, C = .8Yd and S = .2Yd. CH9, Q7a – Is the economy of Nurd in equilibrium?   No   What is Nurd’s equilibrium level of  income?   150  What is likely to happen in the coming months if the government takes no  action?   Income will most likely fall. CH9, Q7b – If $200 is the “full-employment” level of Y, what fiscal policy might the government  follow if its goal is full employment?   Government spending must be increased by $15 billion to  reach full employment. CH9, Q7c – If the full-employment level of Y is $250, what fiscal policy might the government 
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/15/2010 for the course EC 141DLC taught by Professor Antonifirner during the Fall '09 term at Park.

Page1 / 4

Knapp5 - WEEK5

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online