How much will taxes have to be cut or increased

Assignment Help Econometrics

Reference no: EM13246368

Assume a self-regulatingeconomy described by the following statistics:

Price level =132

Quantity demanded of Real GDP =$4 trillion

Quantity supplied of Real GDP inthe short run = $3.9 trillion

Long-run aggregate supply isvertical at $4.3 trillion

Is the economy in short -run equilibrium?

Will the price level in long-runequilibrium be greater than, less than, or equal to132?

Assume an economy can bedescribed by the following equations. (Keynesian

model)

C = 300 + 0.8Y

I = 100

G = 200

(X - IM) =50

a. What is the MPS in thiseconomy?

b. What is the MPC in thiseconomy?

c. What is themultiplier?

d. Calculate the equilibriumlevel of Y.

e. Suppose that full employmentequilibrium will occur at Y = 4000. What kind of gap exists?

f. How much will governmentpurchases have to increase or decrease to reachfull employment equilibrium?

g. How much will taxes have to be cut or increased to achieve full employment equilibrium?

h. Suppose that the AS curve isupward sloping. Will the change in government purchases or the change in taxesyou have recommended above move the economy to an output level of 4000?

Reference no: EM13246368

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