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An economy is described by the following equations: C = 80 + 0.6 (Y – T)...

An economy is described by the following equations:

C

= 80 + 0.6 (Y – T)
I p

= 70
G

= 120
NX

= 10
T

= 150
Y*

= 400

The multiplier in this economy is 2.5.

a. Find a numerical equation relating planned aggregate expenditure to output.

Instruction: Enter your response for mpc rounded to one decimal place.

PAE =  + Y.

b. Construct a table to find the value of short-run equilibrium output.

Instruction: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

Output Y

Planned aggregate expenditure (PAE)

Y – PAE

275

375

475

575

675


Short-run equilibrium output is .

c. By how much would government purchases have to change in order to eliminate any output gap? By how much would taxes have to change?

Instruction:  Enter your responses rounded to one decimal place.

In order to eliminate any output gap, government purchases would have to be (Click to select)reducedincreased by .

In order to eliminate any output gap, taxes would have to be (Click to select)reducedincreased by .

d. If Y* = 625, then by how much would government purchases have to change in order to eliminate any output gap? By how much would taxes have to change?

Instruction: Enter your responses as integer values.

In order to eliminate any output gap, government purchases would have to be (Click to select)reducedincreased by .

In order to eliminate any output gap, taxes would have to be (Click to select)reducedincreased by .

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