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Unformatted text preview: 2. Ap = 120 cTa = .6Ta 120/-.6 = -200 Ta = -200 Fiscal policymakers must cut taxes by 200 billion to restore equilibrium income to 11,100, given no changes in government spending or the interest rate. 3. Ap = G .6Ta Ap = 120 G = T a .4 G = 120 G = 300 Fiscal policymakers increase both government spending and taxes by 300 billion to restore equilibrium income to 11,100, given no changes in the government budget balance or the interest rate. 4. According to the equation in b. above, autonomous planned spending increases by 60 billion for every one percentage point drop in the interest rate. Since autonomous planned spending must increase by 120 billion to restore equilibrium income to 11,100, monetary policymakers must decrease the interest rate by 2 percentage points to restore the equilibrium income to 11,100. Problem 4-1 a. b. c. d. e. I tried combining c-e on this graph....
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This note was uploaded on 11/26/2011 for the course ECON 301 taught by Professor Kornilov during the Spring '11 term at Park.
- Spring '11