ch9probsetans2

# ch9probsetans2 - 1 ANSWERS PRACTICE QS CH 9 FALL 2007 1 Y =...

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ANSWERS PRACTICE QS CH 9 FALL 2007 1. Y = 150 + .75 (Y-200) + 100 + 150 Y = 150 + .75Y – 150 + 100 + 150 Y - .75Y = 250 .25Y = 250 Y = 250/.25 = 1000 C = 150 + .75(1000-200) C = 150 +600 = 750 Yd = Y-T = 1000-200 = 800 S = Yd – C = 800 – 750 =50 Tax multiplier = -MPC/1-MPC = -.75/.25 = -3 Therefore change in Y = -20 x –3 = 60 New Y = 1000 + 60 = 1060 C = 150 + .75(1060-180) C = 150 + 660 = 810 S = Yd-C = 880 – 810 = 70 You would argue for this if the economy needed to be stimulated because Eq Y < FE Y. You would argue against this if the economy did not need to be stimulated. If the economy was already at FE, this stimulation would lead to inflation. 2. If the increase in tax revenues exactly matched the spending increase, British GDP would rise by the amount of the change in tax = change in government spending. The balanced budget multiplier is 1. This works only in an economy with no income tax and no import function. 3.

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ch9probsetans2 - 1 ANSWERS PRACTICE QS CH 9 FALL 2007 1 Y =...

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