Question

C =75+0.8YD

I0 = 200
G0 = 275
NT = 0.25Y

1. 1 Calculate Y*.

2. 2 Calculate the BB and draw a BB graph showing where the country’s equilibrium point belongs.

3. 3 If YP = 1500, what kind of gap is there? How could the government use fiscal policy to close this gap? Draw a Y-AE graph and show the change the government’s actions would cause.

Answer 1

C 75 0 8 Y T O25Y 275 To 2 00 wnd 75 o 3 Y O25 Y + 200121 550 550 550 1375 04

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