Business, 07.04.2020 22:53 katerin5168

Assume you have the following model of the expenditure sector: Sp = C + I + G + NX C = 400 + (0.8)YD Io = 200 G = 300 + (0.1)(Y* - Y) YD = Y - TA + TR NXo = - 40 TA = (0.25)Y TRo = 50 a. What is the size of the output gap if potential output is at Y* = 3,000? b. By how much would investment (Io) have to change to reach equilibrium at Y* = 3,000, and how does this change affect the budget surplus? c. From the model above you can see that government purchases (G) are counter-cyclical, that is, G is increased as national income decreases. If you compare this specification of G with one that has a constant level of government spending (for example, Go = 300), how would the value of the expenditure multiplier differ? d. Assume the equation for net exports changes from NXo = - 40 to NX1 = - 40 - mY. How would this affect expenditure multiplier, if we assume that 0 < m < 1?

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Assume you have the following model of the expenditure sector: Sp = C + I + G + NX C = 400 + (0.8)YD...

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