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Chapter 8: Answers are marked in Blue Use the following macroeconomic model to answer the questions from 1 through 11: C = 115 + 0.75Yd; C = consumption function; Yd (Y-T) = disposable income I = 150; I = Investment G = 200; G = Government expenditure T = 100; T = Tax revenue X = 40; X = Export M = 30; M = Import Also assume that Yf = Full employment GDP (Potential GDP) = 2,000 1. Estimate the equilibrium GDP level (income, Ye) ______ Ye = C+I+G + (X-M) = 115 +0.75 (Ye -100) + 150 + 200 + (40-30) Ye - 0.75Ye = 115- 0.75*100 +360 = 475 – 75 = 400 Ye = 1/(1-.75) *400 = 4*400 = 1,600 2. Estimate the level of aggregate consumption (C) _______ C = 115 + 0.75 (1600-100) = 115 +0.75*1500 = 1240 3. Estimate the level of aggregate saving (S) ______ S = Yd – C = 1500 -1240 = 260 4. The MPC and MPS for the economy are respectively: _0.75_and __0.25___ 5. The expenditure multiplier for the economy is ____4______ 6. The tax multiplier for the economy is ___-MPC/MPS=-0.75/0.25 = -3_ 7. Given the value of full employment level of GDP above, the GDP gap is ______ Yf – Ye = 2,000 -1600 = 400 8. The government spending needed to bridge the GDP gap you found in statement 7 above would be _____400/4 = 100_____ 9. If the export value increases to 60, due to decrease in the value of US \$, other things staying the same, then the answer to Question 1 would be - --- Delta Ye = Multiplier * Delta (X-M) = 4 *20 = 80; Ye’ = 1600+ 80 = 1680 10. In addition to increase of export value in statement 9 above, if the import value decreases to 20 for the same reason, other things remaining the same, then the answer to Question 1 would be Delta Y = Multiplier * Delta Net export(X-M) = 4* 10= 40; Y’’ = 1680+40 = 172011.Instatement8above,theGDPgapandrecessionarygaparerespectively__400__and__100_
12. Illustrate your answers from 1 through 8 in a graph of 45-degree equality line, similar to the Figure 8.5 in section 8.3.6 in this chapter:
Chapter 9:Answers are in Blue:1.By using the fiscal policy tools explained in this chapter, explain the policy of possible
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