econ 105_tut question_chapter 21%2622_part II_answer key

G given your answer in part f what fiscal tool would

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Unformatted text preview: an economy. g. Given your answer in part f, what fiscal tool would government use to eliminate the output gap? An expansionary fiscal policy is needed by increasing G or/and decreasing t. Stabilizing output means an attempt to steer actual GDP to the potential GDP as close as possible so that output gaps are eliminated or minimized. 2 SFU Econ 105 Week 7 Spring 2013 h. Given your answer in part g, suppose the government implements a fiscal stabilization policy by changing both G and T. Given that a rise in G by 200 has been set, then what net tax rate must be accompanied with the new G to stabilize output? With a given level of G and a variable t, desired AE = 275 + 200 + [0.8(1-t) – 0.15]*Y The policy objective: YE = Y* = 1000 AE ( YE ) = YE = 1000 Setting AE as the following and solve for t 1000 = 475 + [0.8(1-t) – 0.15]* 1000 t = 0.156 3...
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