Based on research conducted by the Department of Economic Analysis, the government and policy advisors of an economy believe that the full employment GDP is $7500 billion, and Pe, the overall expected price level is 118. In addition, the researchers estimate that the short run aggregate supply equation is Y = Ypot + 80 (P-Pe), where Ypot is the potential level of output. In 2016, the population was 400 million, and the structure of the economy was described by the following equations for household consumption behavior and taxes received: C= 100+ 0.8DI, and T = 0.25Y where all monetary values are in billions of dollars. Government spending was fixed at $1700 billion, and firm's investment behavior was fixed at $800 billion. Trading is allowed in this economy and in 2016, trading occurred such that the trade account was balanced. That is, net exports (X-IM) was equal to zero. (Question 15 of 20) Now consider that in in the following year (2017), the government decided to implement a policy aimed at moving the economy to full employment. In its decision to move the economy to full employment, they used government spending as the policy tool. The structure and fixed spending behaviors remain the same as they were in 2016, except for government spending. In addition, changes to the population's birth, mortality, and net migration levels were such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary purpose. Now suppose that a new government is installed in 2018. Unlike the preceding government, the new government is concerned about the government's budget balance from 2017. Specifically, the government would like to achieve a balanced budget. To achieve this goal, the new government decided to use net taxes (specifically, fixed taxes) as its policy tool. The structure and fixed spending behaviors remain the same as they were in 2017 except for fixed taxes (which is currently equal to zero). In addition, changes in the population's birth, mortality, and net migration levels were such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary purpose. What was the change (from 2017) in the equilibrium level of real GDP (in billions of dollars), that resulted from the government's policy in 2018? (report your answer to 2 decimal places)

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supply equation is Y - Ypot + 80 (P-Pe), where Ypot is the potential level of output. In 2016, the population was 400 million, and the structure of the economy was described by the following equations for household consumption behavior and taxes received: C = 100+ 0.8DI, and T = 0.
where all monetary values are in billions of dollars. Government spending was fixed at $1700 billion, and firm's investment behavior was fixed at $800 billion. Trading is allowed in this economy and in 2016, trading occurred such that the trade account was balanced. That is, net exports (X-IM)
was equal to zero.
(Question 15 of 20)
Now consider that in in the following year (2017), the government decided to implement a policy aimed at moving the economy to full employment. In its decision to move the economy to full employment, they used government spending as the policy tool. The structure and fixed spending
behaviors remain the same as they were in 2016, except for government spending. In addition, changes to the population's birth, mortality, and net migration levels were such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary
purpose.
Now suppose that a new government is installed in 2018. Unlike the preceding government, the new government is concerned about the government's budget balance from 2017. Specifically, the government would like to achieve a balanced budget. To achieve this goal, the new government
decided to use net taxes (specifically, fixed taxes) as its policy tool. The structure and fixed spending behaviors remain the same as they were in 2017 except for fixed taxes (which is currently equal to zero). In addition, changes in the population's birth, mortality, and net migration levels were
such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary purpose.
What was the change (from 2017) in the equilibrium level of real GDP (in billions f dollars), that resulted from the government's policy in 2018? (report your answer to 2 decimal places)
Transcribed Image Text:supply equation is Y - Ypot + 80 (P-Pe), where Ypot is the potential level of output. In 2016, the population was 400 million, and the structure of the economy was described by the following equations for household consumption behavior and taxes received: C = 100+ 0.8DI, and T = 0. where all monetary values are in billions of dollars. Government spending was fixed at $1700 billion, and firm's investment behavior was fixed at $800 billion. Trading is allowed in this economy and in 2016, trading occurred such that the trade account was balanced. That is, net exports (X-IM) was equal to zero. (Question 15 of 20) Now consider that in in the following year (2017), the government decided to implement a policy aimed at moving the economy to full employment. In its decision to move the economy to full employment, they used government spending as the policy tool. The structure and fixed spending behaviors remain the same as they were in 2016, except for government spending. In addition, changes to the population's birth, mortality, and net migration levels were such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary purpose. Now suppose that a new government is installed in 2018. Unlike the preceding government, the new government is concerned about the government's budget balance from 2017. Specifically, the government would like to achieve a balanced budget. To achieve this goal, the new government decided to use net taxes (specifically, fixed taxes) as its policy tool. The structure and fixed spending behaviors remain the same as they were in 2017 except for fixed taxes (which is currently equal to zero). In addition, changes in the population's birth, mortality, and net migration levels were such that the population remained at 400 million. The policy was implemented, and it was successful in achieving its primary purpose. What was the change (from 2017) in the equilibrium level of real GDP (in billions f dollars), that resulted from the government's policy in 2018? (report your answer to 2 decimal places)
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