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5 Nov 2020
Suppose a private closed economy has an MPC of .8 and a current equilibrium GDP of $7400 billion.
a)What is the multiplier in this economy?
b) Now suppose the economy opens up trade with the rest of the world and experiences net exports of $20 billion. How much will the GDP change by this change in net exports?
c) Next, suppose government spending is introduced and plans to spend $100 billion. How much will the GDP change by this change in government spending?
d) To finance this expansion of government spending (c), suppose the government decides to levy a lump-sum tax of $100 billion. By how much will GDP change, and in what direction (increase or decrease)?
Suppose a private closed economy has an MPC of .8 and a current equilibrium GDP of $7400 billion.
a)What is the multiplier in this economy?
b) Now suppose the economy opens up trade with the rest of the world and experiences net exports of $20 billion. How much will the GDP change by this change in net exports?
c) Next, suppose government spending is introduced and plans to spend $100 billion. How much will the GDP change by this change in government spending?
d) To finance this expansion of government spending (c), suppose the government decides to levy a lump-sum tax of $100 billion. By how much will GDP change, and in what direction (increase or decrease)?
2 Jun 2021
