Please show ALL work!! Thank you GDP $100 200 300 400 500 600 700 $100 160 220 2

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Please show ALL work!! Thank you

GDP $100 200 300 400 500 600 700 $100 160 220 280 340 400 460 S0 40 80 120 160 200 240 $80 80 80 80 80 80 80 Refer to the accompanying information for a closed economy. If government now spend: $80 billion at each level of GDP and taxes remain at zero, the equilibrium GDP B) will rise to $700 D) will rise to S A) will rise to $600 C) may either rise or fall ID: MAC21MCC 11-155 Topic: Adding the Public Sector Learning Objective: 11-07 Explain how economists integrate the public sector government expenditures and taxes into the aggregate expenditures model AACSB: Knowledge Application 16) If the MPC in an economy is 0.75, a S1 billion increase in taxes will ultimately reduce 16) consumption by C) $0.75 billion A) S3 billion. ID: MAC21MCC 11-174 Topic: Adding the Public Sector Learning Objective: -07 Explain how economists integrate the public sector government expenditures and taxes into B) $4 billion D) S1 billion the aggregate expenditures model

Explanation / Answer

(15)

If government increases its spending by $80 at each level of GDP and taxes remain zero, Then the equilibrium GDP will be at a point where;

GDP= AE=C+I+G

GDP=AE=$500

Hence equilibrium level of GDP will increase to $500.

Therefore the correct answer is option D.

(16)

MPC=0.75

Since the taxes have been increased by the government by $1 billion, it means GDP will reduce by $1bilions.

Hence the consumption will reduce by = MPC* Change in the GDP

=0.75* $1 billions.

=0.75 billions

Hence the consumption will reduce by $0.75 billion if taxes are increased by $1billions.

Therefore correct answer is the option C.

GDP C S I G C+I+G=AE 100 100 0 80 80 260 200 160 40 80 80 320 300 220 80 80 80 380 400 280 120 80 80 440 500 340 160 80 80 500 600 400 200 80 80 560 700 460 240 80 80 620

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