1. If C = 1000 + 7/8[GDP-1000], I = 700 and G = 1000 and the economy is currently in equilibrium at 400 below full employment GDP, the correct fiscal policy would be to increase G by? (Points: 2)
2. If C = 500 + 3/4[GDP- 100], I = 300, G = 400, Xn =- 10 and full employment GDP is 210 less than current GDP, the proper action would be to increase taxes by?
economic - economyst, Monday, December 1, 2008 at 9:08am
Do a little research, then take a shot. What do you think?
Hint for 1): find the government spending multiplier: (1/MPS)
Hint for 2): find the taxation multiplier: (1/MPS)-1.