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(a)  Suppose that real GDP for an economy is currently $13.1 trillion,

potential GDP is $13.5 trillion, the government purchases multiplier is 2 and the tax multiplier is -1.6. Answer the following (show your workings out)



-Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP? 
-Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP?
-Construct an example of a combination of increased government spending and tax cuts that will bring the economy to equilibrium at potential GDP. (b) If you know that a country's net foreign investment is positive, what does that tell you about the relationship between the country's national saving and private investment?
(c) Let's assume that Australia has been running a current account deficit every year. What must then be true about Australia's financial account balance?

Subject: Business, Economics

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