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Consider the Keynesian Model for the Open Economy with Government: Planned Expenditures: AE = C +...

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).

Solutions

Expert Solution

Rahul Sunny answered 7 months ago
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