QUESTION1: Calculations and Analysis Upload your answers BELOW. This is a multi-part question (a-i). [20 points total] S

[answerhappygod]

Question1 Calculations And Analysis Upload Your Answers Below This Is A Multi Part Question A I 20 Points Total S 1 (119.89 KiB) Viewed 23 times

QUESTION1: Calculations and Analysis Upload your answers BELOW. This is a multi-part question (a-i). [20 points total] Suppose an economy is represented by the following: C = 2000+ 0.5*(YT) - 50r T = 400 I = 1000 - 50r G = 700 Ms = 8000 P = 4 L(r,Y)= Y-300r; n = 0. SHOW WORK FOR ALL CALCULATIONS. a. [5 points] Solve for the IS curve and the LM curve (both as function of r) b. [2 points] Solve for the equilibrium level of Y* and r*. c. [2 points] Solve for the value of disposable income and the government budget. Is the government running a budget deficit or a budget surplus? Just state. d. [1 points] Suppose the full-potential level of output is equal to 6000. Draw the AD-AS diagram to illustrate the equilibrium values in part b) and this full-potential level of output. [NOTE: if you were not able to solve for Y^ in part b) just assume that Y* equals 2000; if you solved for Y* in part b) use that value]. e. [1 point] Given your answer in part d) is there a positive output gap or negative output gap in the economy? Calculate it and state whether the output gap is positive or negative. f. [5 points] Continue with part d), what policy would you recommend to bring the economy to full-potential? Identify the exact policy and then discuss in detail how the policy would close the output-gap. I.e. Discuss the policy that will restore full-potential. Provide an intuitive discussion. (do not draw the impact of this policy on the figure in d). g. [1.5 points] Redraw the AD-AS diagram from part d) and illustrate the impact of the stabilization policy (that you discussed above in part f). h. [1.5 points] Look at your answer in part d. If no policy is used to restore full-potential level of output, what would be the impact on P in the LR? Just state. Would this be illustrated as a movement in AD or a shift in AD? Just state. i. [1 points] Consider your answers in a-d. If no active policy was used to restore output in the economy, what would be the value of P in the LR? Calculate, showing work.