ECO 300 – Intermediate Macroeconomics
Assignment 3

Problem 1
Assume that in Period 0 we have Y=200,...

Question

ECO 300 – Intermediate Macroeconomics
Assignment 3

Problem 1
Assume that in Period 0 we have Y=200, C=180, G=0 and MPC=0.75. Assume in period 1 only G increases by 30. How much will output/income (Y) ultimately increase? Show your calculations.

Problem 2
Based on Problem 1, assume that G=0 in all periods but in period 1, taxes decline by 15. What happens to output/income(Y)? Show your calculations.

Problem 3
Based on problem 1, assume G increases by 15 but taxes increase by 15 to maintain a balanced budget. What happens to output/income (Y) in this case? Show your calculations.

Robert · Accepted Answer

1 Assume that in Period 0 we have Y=200, C=180, G=0 and MPC=0
1 Assume that in Period 0 we have Y=200, C=180, G=0 and MPC=0.75. Assume in period 1 only G increases by 30. How much will output/income (Y) ultimately increase? Show your calculations.
At equilibrium, we have:
Y=C(Y-T)+I+G
Or, dY=MPCdY+dG        when both T and I are unchanged. 
Or, dY/dG=1/1-MPC
Or, 1/1-.

ECO 300 – Intermediate Macroeconomics Assignment 3 Problem 1 Assume that in Period 0 we have Y=200, C=180, G=0 and MPC=0.75. Assume in period 1 only G increases by 30. How much will output/income (Y)...

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