Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:Assumptions are critical in macroeconomics. Different assumptions change dramatically your answers. Assume the following conditions for the following questions:- Closed economy (NX=0)- Prices are fixed (inflation=0)- Nominal and real interest rates are fixed- Planned investment is autonomous of interest rates- Y refers to real GDP (not nominal)- T = Net Taxes = TA-TR- Full-employment GDP = Yf = $10,000Please use the following relationships and data to answer the questions. If the question asks you to calculate, then make sure you have a number as an answer.C = 40 + .95YdI (planned) = 300G = 95T = TA-TR = 100NX = 01. Calculate the equilibrium Y.Page 1 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:2. Sketch the Keynesian-cross for this economy. Label the equilibrium output, Y1. Also label thefull-employment output, Yf.Page 2 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:3. Suppose full-employment output (Yf) is at $10,000, but our current economy is at Y1. How much do we need to increase government spending in order to reach Yf? You can only raise government spending. Your proposal must have a specific dollar amount.Page 3 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:4. Suppose full-employment output (Yf) is at $10,000, but our current economy is at Y1. How much do we need to cut net taxes in order to reach Yf? You can only cut net taxes. Your proposal must have a specific dollar amount.Page 4 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:5. Suppose full-employment output (Yf) is at $10,000, but our current economy is at Y1. Fiscal responsibility becomes the new political trend. Congress wants to balance the budget, but it refuses to change government spending. Propose a solution to satisfy Congress. Your proposal must have a specific dollar amount.Page 5 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:6. How does balancing the budget affect aggregate output? Calculate the new equilibrium output. Show your answer graphically in problem 2. Label the new equilibrium output, Y2.Page 6 of 7Econ 98-Chiu Fiscal Policy Worksheet Spring 2005Name & SID: Date:7. Suppose full-employment output (Yf) is at $10,000, but our current economy is at Y2. Congress wants to maintain a balanced budget and raise output to full-employment. Propose a solution to satisfy Congress. Your proposal must have a specific dollar amount. Show your answer graphically in problem 2. Label the new equilibrium output, Y3.Page 7 of
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