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The economy is in a crisis! How are we going to fix it? should we cut taxes or increase government spending? lets find out. Suppose the economy can be modeled as follows. C=100+.9Yd AE=C+I+G I=500 G=500 T=500 A)Graph the economy and solve for equilibrium income. B) Suppose full employment income is 15,000. By how much would the government have to change government spending to reach full employment? What is the fiscal spending multiplier in this case? Graph it! C) Again suppose full employment income is 15,000. By how much would the government have to change taxes to reach full employment? What is the tax multiplier in this case? Graph it!
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