Question: 3. (2,3 points) Suppose the following equations describing a closed economy: C-400 + 0,7YD 1-400 …

30 Apr Question: 3. (2,3 points) Suppose the following equations describing a closed economy: C-400 + 0,7YD 1-400 …

Posted at 21:00h in 2Past Paper by Exams

3. (2,3 points) Suppose the following equations describing a closed economy: C-400 + 0,7YD 1-400 _ 40 i + 0,1Y G-350, T-300 Ma_Y-30i M’ = 5.640 P 2 constant prices where C-consumption, l-investment, G = Government spending, T-taxes, Md- Money demand, M’ Money supply, YD -Disposable income. 21 Find the equilibrium values for Y, i, C, I, and G and their respective income shares. Starting from the initial equilibrium suppose the fiscal authority wants to lower output by 5%. If it uses government expenditure (G) as instrument what should the authority do? If instead of using G they use taxes (T), what is the tax level that will attain the goal of reducing output by 5%? Compare your results. What happened to the shares of C, I and G in these two policies? a. b.

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