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Problem Set 13 (ECO100)

# Problem Set 13 (ECO100) - Prof Gustavo Indart Department of...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Set 13 1. Consider the Aggregate Expenditure model of the economy with a linear aggregate expenditure (AE) curve. a) Measuring aggregate expenditure (AE) on the vertical axis and real GDP (Y) on the horizontal axis, plot an AE curve that cuts the 45 E line at 200, and is 380 at GDP equal to 400. b) Calculate algebraically the slope and the vertical intercept of the expenditure curve. c) If potential GDP is 400, is there an inflationary or recessionary gap? What is the size of this inflationary or recessionary gap? d) If the government wants to close this gap, should increase or decrease its purchases of goods and services (G)? By how much should increase or decrease G? 2. Given Savings (S) as a function of Disposable Income (YD) such that autonomous savings are negative and equal to -\$10 billion and savings are \$70 billion when disposable income is \$400 billion.

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Problem Set 13 (ECO100) - Prof Gustavo Indart Department of...

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