Question

C = 10 - 0.8Y I = 20 - 10r G = 20 Md = (1/10)Y-10r...

C = 10 - 0.8Y

I = 20 - 10r

G = 20

Md = (1/10)Y-10r

M = 40;

P=8

Suppose full employment output Yf = 190. Determine what increase in public spending – i.e. expansionary fiscal policy (financed through taxes) - will be necessary to reach this objective.

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Hence government expenditure should increase by $32.67 to reach at $190 level of output.

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