Question

5. Use the Simple Classical Macroeconomic Model to answer the following questions c. Suppose the tax cut has not been enough to stimulate sufficient job growth. The government passes infrastructure improvement legislation to increase government spending from $3,000 to $4,000. What is the affect on GDP from the combined changes (Taxes and Spending) in government policies? . Suppose the government decides to spend $3,000 and collect $3,500 in taxes, and investment is equal to $1,500. What would GDP be if the consumption function was 95 percent? d. U.S. consumers are feeling uncertain about future economic conditions and start to save more money. Thus, the increased savings level alters the consumption function from 95 to 90 percent. What would be the change to GDP given the current conditions? b. Suppose the economy enters a recession and the government decides to lower taxes to stimulate growth (from $3,500 to $3,000. What would happen to the level of GDP?

Answer 1

The answer is written part by part with proper explanation and with the required formulaes. You can find the answer in the below images.

Date Page GOP - Yz Imports CŁ I+G + NLX Co consumption its function is (z ath (y-7) or yovemmint shendetiere NX Meet (esports Investment C 7 95% lina C = 95 (y-7) 3500 3000 (NXo) in our cast I > Too G > I ㅋ 1500 Yz 95 (Y-T) t It G 100 95 x 3500 f 1500 + 3000 Ya 95% joo - 3325 + 4500 too 20 Y z 3 1175 X20 23,500 o'y GOP z 2 Yz Now Josus are decreased to 3000 3000 from 3500 calculating the GDP again, kuping all other (IG, C) Yz 95 (Y-1) + ItG valmes som 100 ya 95 (y - 3000) + 4500 100 4500 95X30 100 ya 4500 2850

classmate Date Page Yz 16.50 2o CH Yz 1650 x 20 33000 Hence GDP resis by ( 33000 – 23500) 9500 y 2 In this case Joxes are 3000 Spending musis resis to 4000 and Government Le Y295 (y-7) t It G. 10o Y2 95 (Y-3000) + 1500 + 4000 Y 2 95 (y - 3000) + 5500 100 5Y TOO 5500 - 95X30 Y Z 2.50 20 Y = 53000 Hince GDP resis by z 20000 53000 - 33000) changes from function Now the consumption 95% to 90%. again calculating GOP with current condition Tz 3ooo G z 4000 Iz 150 Y 9 (y-7) + Ito 100 Y : go ( Y - 3000) + 4000 + 1500 100

Yz 907 loo 90 x3000 + 5506 loo لام1 5500 - 90x30 100 2700 10) 5500 100 Yz 2800 6 an this case Cho Pruduci by (53000 - 28000) - 25000