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 (Y^e).

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 1 week ago

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