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Consider a nation with the sacrifice ratio

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1. Consider a nation with the sacrifice ratio according to our PowerPoints. It wants to reduce its inflation by 20%, spread out evenly over 4 years. How much will it need to sacrifice GDP each year to do so?

2. If the government decreases taxes by $200 and people save 32% of each additional dollar earned, what will be the change in income (aggregate demand)? (Enter a positive number for an increase in income and a negative number for a decrease.)

3. Using the typical estimate of the sacrifice ratio from the PowerPoint, how much GDP (in percentage terms, though you are not to include a percentage sign) must be sacrificed to lower inflation from 7% to 4% in one year?

4. If the government decreases its spending by $1560 and people in the economy spend 84% of each additional dollar they earn, what will be the change in income (aggregate demand)? (Enter only numbers, a decimal point, and a negative sign if necessary; round your answer to two decimal places. Enter a positive number for an increase in income and a negative number for a decrease.)

Reference no: EM131277539

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