Exercise 5. There are observed following behavioral equations in the economy: C = Co + c(Y -T) 1 = 1o - WR G = Go T = To

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Exercise 5 There Are Observed Following Behavioral Equations In The Economy C Co C Y T 1 1o Wr G Go T To 1 (30.5 KiB) Viewed 18 times

Exercise 5. There are observed following behavioral equations in the economy: C = Co + c(Y -T) 1 = 1o - WR G = Go T = To where: Co > 0. lo > 0, Go > 0. To > 0, c € (0; 1), w > 0. Solve following problems: b) Present graphically how change in government spending affects economy e) Present graphically how change in autonomous tax affects economy d) There is budget deficit in the economy. Government can reduce deficit either by increasing taxes or by reducing government spending. Explain, which instrument should be used to reduce budget deficit? e) Government can change either taxes or government spending. Which instrument should be used if government tends to increase aggregate income?