Problems

a. The size of the multiplier in this economy

Dik: Y1 = 500,

Y2 = 510

C1 = 495,

C2 = 504

Dit : MPC ?

MPC = 0.9

k = 10

b. If taxes were zero, government purchases were kd 5, investment is kd 3, and net exports are zero, the equilibrium GDP

DIk :T = 0,

G = 5,

I = 3

Dit : Y

eq?

Answer:Y = C + G + IY

= 495 + 5 + 3

= 503

c. If taxes are kd 10, government purchases are kd 10, investment is kd 6, and net exports are zero, the equilibrium GDP

DIk :T = 10,

G = 10,

I = 6,

Net export = 0

DIt : Y

eq?

Answer:Y = C + G + IY

= 495 + 10 + 6

= 511

d. Assume investment is kd 50, taxes are kd 50, and net exports and government purchases are each zero, the full-employment level of GDP is kd 545, a reduction in taxes is needed to eliminate the recessionary gap

Dik :I = 50

T = 50

Full employment GDP = 545

Dit: recessionary gap?

Jawab: Recessionary gap = GDP + 50 - 50

= 545 + 50 – 50

= 545