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    Group 7 - Exercise 4

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    Sao Nguyễn Toàn
    The document analyzes an economy's equilibrium output and real unemployment rate under two scenarios. In scenario a, equilibrium output Y=660 and the government budget is in surplus as taxes T exceed spending G. The real unemployment rate is calculated as 10.4%. In scenario b, an increase in government spending to G2=100 leads to a new equilibrium output of Y2=700 and higher taxes of T2=180. The document also outlines how fiscal policy tools of changing government spending G or taxes T could be used if actual output Y differs from potential output Yp. An increase in G of 10 or decrease in T of 40/3 would close output gaps.

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    Group 7 - Exercise 4

    Uploaded by

    Sao Nguyễn Toàn
    12 views2 pages
    The document analyzes an economy's equilibrium output and real unemployment rate under two scenarios. In scenario a, equilibrium output Y=660 and the government budget is in surplus as taxes T exceed spending G. The real unemployment rate is calculated as 10.4%. In scenario b, an increase in government spending to G2=100 leads to a new equilibrium output of Y2=700 and higher taxes of T2=180. The document also outlines how fiscal policy tools of changing government spending G or taxes T could be used if actual output Y differs from potential output Yp. An increase in G of 10 or decrease in T of 40/3 would close output gaps.

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    Group 7_exercise 4 - Copy

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    The document analyzes an economy's equilibrium output and real unemployment rate under two scenarios. In scenario a, equilibrium output Y=660 and the government budget is in surplus as taxes T exceed spending G. The real unemployment rate is calculated as 10.4%. In scenario b, an increase in government spending to G2=100 leads to a new equilibrium output of Y2=700 and higher taxes of T2=180. The document also outlines how fiscal policy tools of changing government spending G or taxes T could be used if actual output Y differs from potential output Yp. An increase in G of 10 or decrease in T of 40/3 would close output gaps.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    12 views2 pages

    Group 7 - Exercise 4

    Uploaded by

    Sao Nguyễn Toàn
    The document analyzes an economy's equilibrium output and real unemployment rate under two scenarios. In scenario a, equilibrium output Y=660 and the government budget is in surplus as taxes T exceed spending G. The real unemployment rate is calculated as 10.4%. In scenario b, an increase in government spending to G2=100 leads to a new equilibrium output of Y2=700 and higher taxes of T2=180. The document also outlines how fiscal policy tools of changing government spending G or taxes T could be used if actual output Y differs from potential output Yp. An increase in G of 10 or decrease in T of 40/3 would close output gaps.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Group 7_Exercise 4:

    a,
     Equilibrium Output:
    Y = AD = C + I + G + X – M = 45+0,75Yd+60+0,15Y+90
    We have: Yd=Y - T=Y - (40+0,2Y)
    ⇒ Y= 45+0,75(Y-40-0,2Y)+60+0,15Y+90
     Y=45 + 0,75Y - 30 - 0,15Y + 150 + 0,15Y
     Y = 660
     Any comment on the Government budget’s status: 
    T=40+0,2Y = 40+0,2*660 =172
    G = 90
    ⇒ T > G ⇒ budget surplus
     Calculating the real unemployment rate:
    Ut = Un + [(Yp – Yt)/Yp]* 50% = 5%+ [(740 -660)/740)]*50% = 10,4%

    b,
     New equilibrium output:
    Y2 = AD2 = C + I + G2 + X – M = 45 + 0.75Yd + 60 + 0,15Y2 + 100
    We have: Yd = Y2 – T = Y2 - 40 - 0.2Y2 = 0.8Y2 - 40
    ⇒ Y2 = 45 + 0.75(0.8Y2 - 40) + 60 + 0.15Y2 + 100 
    ⇒ Y2 = 700
     Change in Taxes:
    We have:
    G = 90 ⇒ Y = 660 ⇒ T = 40 + 0.2Y = 40 + 0.2*660 = 172
    G2 = 100 ⇒ Y2=700 ⇒ T2 = 40 + 0.2Y = 40 + 0.2*700 = 180
    ⇒ T increase by 8

    c. How can the government using the fiscal policy:


     If Y < Yp  Changes G only:
    k = 1/[1 – Cm (1 – Tm) – Im + Mm] = 1/[1-0,75(1-0,2)-0,15+0] = 4
    Delta AD = Delta Y/k = (700 - 660)/4 
    Delta G = Delta AD = (700 - 660)/4
    Delta G = 10
     G increase by 10
     If Y > Yp  Changes T only:
    k = 1/[1 – Cm (1 – Tm) – Im + Mm] = 1/[1-0,75(1-0,2)-0,15+0] = 4
    Delta T = -Delta AD/Cm = (-Delta Y/k) / Cm = (-40/4)/0,75
    Delta T = -40/3
     T decrease by 40/3

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