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Unformatted text preview: equal to its initial value 1600. Now consider fiscal expansion. Suppose that government
spending G increases to G =400. Find equilibrium Y, i, C and I. Summarize the effects of an
expansionary fiscal policy on Y, i, C and I. (3 marks)
(i) There is a sudden drop in consumer confidence and c0 drops from 200 to 100. How can the
government counterbalance the drop in GDP using fiscal policy as a policy instrument? (3 marks) 2. Textbook Question 3 (attached in the next page) in the 5th updated edition or the 6th edition, “The
response of investment to fiscal policy”, part (a)-(e), in Chapter 5. (15 marks)
3. Textbook Question 7 (attached in the next page) in the 5th updated edition or Question 5 in the 6th
edition, “The Bush-Greenspan policy mix”, part (a)-(b), in Chapter 5. (10 marks)...
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- Fall '13