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  3. the following functions describe the behavior of m

The following functions describe the behavior of major macroeconomic variables in an economy where prices are...

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Economics

The following functions describe the behavior of majormacroeconomic variables in an economy where prices are fixed: C =400 + 0.9Yd I = 270 – 2000r G = 70 T = -40 + 0.2Y X = 45 IM = 41 +0.12Y r=3% Y* = 1,725

c. Calculate the cyclical deficit/surplus. d. Suppose thegovernment wants to close the recessionary gap and move us back toY* using changes in G. Calculate the change in G necessary to closethe gap. Is this an increase or decrease in G? e. Suppose insteadthe Federal Reserve wants to close the recessionary gap and move usback to Y* using changes in the interest rate. Calculate the changein the interest rate that will be necessary to close the gap. Isthis an increase or decrease in the interest rate?

Answer & Explanation Solved by verified expert
3.9 Ratings (663 Votes)
C 400 09Yd I 270 2000r G 70 T 40 02YX 45 IM 41 012Y r3 Y 1725Quec For cyclical deficitsurplus we need tofind the value of Y and compare with Y C 400    See Answer
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