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In: Economics

Suppose AD in a country is given by P=210-.02Y, SRAS is given by P=100, and potential...

Suppose AD in a country is given by P=210-.02Y, SRAS is given by P=100, and potential output is equal to 7000. The marginal propensity to consume is .4.

A. What type of output gap exists and what is the size of the gap?

B. If the government wanted to push the economy back towards LR-equilibrium by changing taxes and they changed net taxes such that the new AD curve is equal to P=250-.02Y, by how much did they change net taxes?

C. What happens to real GDP and the price level in the short-run?

D. If they had perfect information about the economy, by how much would they have changed net taxes?

E. What is the corresponding AD curve?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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