core: 0 of 1 pt 15of30(24 complete) HfW Score: 78.67%, 23 of 30 Text Problem 1.3

Question

core: 0 of 1 pt 15of30(24 complete) HfW Score: 78.67%, 23 of 30 Text Problem 1.3c Assume that in 2015, the following prevails in the Republic of Nurd Question Help Govemment spending (G)-$ Net taxes (T)-$ Planned investment (I ) = $30 of Nurd consume 80 percent of their income; they save 20 percent of their income. In other words,their MPC -0.80 and MPS 0.20. Thus, the consumption function and savin function of Nurd are: C0 80Y and S 020Yg, where diaponable income Ya Y-T Currently, the economy of Nurd is in equilbrium. As the leading econometridian of Nurd, you have estimated the ful employmert level of income for the economy to be $250 Caloulate the adjustment in govemment spending, if any, to achieve full employment in Nurd G-S| | (Round your response to one decinal place and nclude a minus sign necessary.)

Explanation / Answer

Y=C+I+G+NX

I=30

G=0

Y=30

Full employment equilibrium=250

Income(Y)must increase by 220 to reach full employment level.

Change in income=230

Change in government expenditure=x

MPC=.8

change in income=multiplier*change in government spending.

Multiplier=1/MPC=1.25

220=1.25X

X=220/1.25

X=176

Therefore,government spending must rise by $176

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