By how much will the equilibrium GDP increase now?.
A)(All in billions of Dollars) Suppose the economy is characterized by the following equations: C=40 Show more A)(All in billions of Dollars) Suppose the economy is characterized by the following equations: C=40+0.8*DI I=20 G=20 X=10 M=40 T=30. Calculate the equilibrium GDP and the size of the multiplier. Suppose G increases by 5 billion (that is from 20 to 25) by how much will the equilibrium GDP increase? B) Now lets make the following changes to our assumptions: 1) We assumed that taxes are lump-sum independent of Income. In reality however this is not the case. Taxes typically depend on the level of income and tend to be higher when income is higher. Suppose taxes depend on the level of Income and given by T=0.2*Y. We can interpret 0.2 as a tax rate in the economy. 2) We also assumed that Imports do not depend on income. Suppose however that demand for imported goods depend on the income level. Suppose that Imports are given by M=2+0.3*Y And still suppose that C=40+0.8*DI I=20 G=20 X=10. Solve for the equilibrium level of GDP for this new problem. Suppose G increases by 5 billion (that is from 20 to 25) By how much will the equilibrium GDP increase now? What is the size of the new multiplier? C) Lets now generalize. Suppose the economy is characterized by the following equations: C=c0+c1*DI I G X are given and Imports are M=m0+m1*Y taxes are T=t*Y where m0 0 Show less
By how much will the equilibrium GDP increase now?
