Question

assume the following applies to a country:

y= 10,000

C= 8,000

S= 1,000

G= 1,000

T= 0

Assume that households consume 90 percent of their income and save 10 percenr of their income. That is C= .9YD and S= .1YD.

1) If 10,000 is full employment equilibrium level of Y, what fiscal policy would you recommend? be specific on the amount of change in fiscal policy .

2) if full employment GDP is 22,000 what fiscal policy would you recommend?

3) determine a level of C, G, T, and I that would produce an equilibrium of 10,000.

4) assume the government spends an additional 500 and increases taxes by an additional 500. determine the impact on GDP.

the tax multiplier for this info is -9 and the spending multiplier is 10. why is the tax multiplier smaller than the government spending multiplier?

Answer 1