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Unformatted text preview: T = 0.5Y a. Draw a graph to show how Y is determined. What is the value of the intercept of the demand line? What is its slope? b. Calculate the value of equilibrium output, taxes, and the government deficit, which is G-T. c. Suppose I increases by 10. How much does GDP increase? d. Starting from the original equilibrium, what happens to the deficit when I increases by 10? e. Starting from the original equilibrium, what happens to the deficit when G increases by 10? 6. Explain how the following affect the fiscal multiplier. a. an increase in tax rates b. an increase in the marginal propensity to import c. a decrease in the marginal propensity to save d. having investment spending also depend on income (e.g. I = I + dY, where d is positive) 7. Do problem 3.6 and 3.7 and problem 5.6 (both editions)....
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This note was uploaded on 09/25/2011 for the course ECN 001B taught by Professor Staff during the Fall '09 term at UC Davis.
- Fall '09