# boeing:how low can they fly?

Topics: Tax, Government spending, Public finance Pages: 4 (628 words) Published: October 16, 2013
Charbel Bassil
Notre Dame University

Principles of Macroeconomics
ECN212

Required Homework Assignment 5

Prepare problems 3, 5 and 7 on pp.521 and the additional problem, Principles of Economics, Case, Fair and Oster.
Problem 3 p.521
For each of the following statements, decide wether you agree or disagree and explain your answer :
1. During period of budget surplus (when 𝐺 < 𝑇 ), the government debt grows. 2. A tax cut will increase the equilibrium level of GDP if the budget is in deﬁcit but will decrease the equilibriumm level of GDP if the budget is in surplus. 3. If the 𝑀 𝑃 𝑆 = 0.90, the tax multiplier is actually larger than the expenditure multiplier. Problem 5 p.521

Expert economists in the economy of Yuk estimate the following : Real output/income 1000 billion Yuks
Government purchases 200 billion Yuks
Total net taxes 200 billion Yuks
Investment spending (planned) 100 billion Yuks
Assume that Yukers consume 75 percent of their disposable incomes and save 25 percent. 1. You are asked by the business editor of the 𝑌 𝑢𝑘𝐺𝑎𝑧𝑒𝑡𝑡𝑒 to predict the events of the next few months. By using the data given, make a forecast. (Assume that investment is constant.)

2. If no changes were made, at what level of GDP (𝑌 ) would the economy of Yuk settle ? 3. Some local conservatives blame Yuk’s problems on the size of the government sector. They suggest cutting government purchases by 25 billion Yuks. What effect would such cuts have on the economy ? (Be speciﬁc)

1

Problem 7 p.521
Assume that in 2008, the following prevails in the Republic of Nurd : Y=200\$
C=160\$
S=40\$
I(planned)=30\$
G=0\$
T=0\$
Assume that households consume 80% of their income, they save 2% of their income, 𝑀 𝑃 𝐶 = 0.8 and 𝑀 𝑃 𝑆 = 0.2. That is, 𝐶 = 0.8𝑌𝑑 and 𝑆 = 0.2𝑌𝑑 . 1. Is the economy of Nurd in equilibrium ? What is Nurd’s equilibrium level of income ? What is likely to happen in the coming months if the government takes no action ? 2. If 200\$ is the « full-employment »...