Cause a movement of y toward y

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1. Consider the following initial conditions (where all dollar amounts are in trillions).

C = 900 + 0.6YD, I = 200, G1 = 600, T1 = 500

a. Given these initial conditions, complete the following.

Y= a) 2500

y = b)3000

y = c)3500

y = d)4000

find the C, I, G, E, S, and S+T for Y(a), Y(b), Y(c), and Y(d)

b. Suppose the current level of Y is $3000-trillion. Explain what would be happening in terms of inventories, and what will cause a movement of Y toward Y*?

c. Solve for Y* algebraically, using both equilibrium conditions. Clearly show your work.

d. Suppose the BLS estimates that YF equals $3,750-trillion. At the Y* you determined in questions c. and d. above, which kind of gap would the economy be in?

e. If the U.S. Congress were to close this gap by changing government spending, what would be the new level of government spending?

f. Now return to the Y* from c. and d. above. If Congress were to close the gap by changing the tax, what would be the new level of the tax?

Reference no: EM132512160

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