In: Economics
Consider the Keynesian Model for the Open Economy with Government:
Planned Expenditures: AE = C + I + G + X - IM
Consumption: C = 435 + 0.72 (Y- T)
Net Tax Revenue: T = 130 + 0.26 Y
Gross Investment: I = 675
Government Expenditures: G = 540
Exports: X = 545
Imports: IM = 110 + 0.12 Y
Potential Output: Yp = 3,550.742
Section 1: Model Questions
Part 1. What is the slope of the AE curve?
Part 2. What is the vertical intercept of the AE curve?
Part 3. Calculate the equilibrium ouput (Ye).
Part 4. Calculate the change in Government Expenditures (ΔG) required to close the output gap (Yf-Ye).
Part 5. Calculate the change in autonomous Taxes (ΔTo) required to close the output gap (Yf-Ye).