simple keynsian model

Posted by vishakha on Jul 22, 2011; 9:25am
URL: http://discussion-forum.276.s1.nabble.com/simple-keynsian-model-tp6609876.html

guys here are some problems from dornbusch chapter 3......please help me with answers.....i jus started with macro for ma entrance...



1.suppose an economy is operating at equilibrium with Y=1000.if the govt undertakes a fiscal change so that the tax rate (t) increases by 0.05 nd govt spending increases by 50,will budget surplus go up or down?why?


2.suppose govt decides to reduce transfer payment but to increase govt spending by an equal amount.....would you expect equilibrium income to rise or fall as a result of this change.why?


3.suppose aggregate demand function makes an intercept on x-axis instead of y axis and is as usual +sloped....will mpc be <1 or >1 and why?how does it fundamentally differ from a typical AD curve that makes an intercept on y-axis?