Question

Consider an economy in which taxes, planned investment, government spending on goods and
services, and net exports are autonomous, but consumption and planned investment change as the
interest rate changes. You are given the following information concerning autonomous consumption,
the marginal propensity to consume, planned investment, government purchases of goods and
services, and net exports:
Ca = 1,500 - 10 rc = 0.6 T = 1, 800
Ip= 2,400 - 50 G = 2,000 NX = - 200
G. Fiscal and monetary policymakers can respond to the decline in huisehold wealth by taking actions
that restore income to its initial equilibrium level. Fiscal policymakers can increase government
spending or cut taxes or do both. Monetary policymakers can reduce interestrates. Given the values of
the multiplier, the tax multiplier, and the balanced-budget multiplier, compute by how much:
Government spending must be increased in order to restore the initial equilibrium level of income,
given no change in taxes or the interest rate.
Taxes must be cut in order to restore the initial equilibrium level of income, given no change in
government spending or the interest rate.
Government spending and taxes must be increased in order to restore the initial equilibrium level of
income, given no change in the government budget balance or the interest rate.
The interest rate must be reduced in order to restore the initial equilibrium level of income, given no
change in government spending or taxes.
(I just need help understanding part G)​

Answer 1

Consider an economy is which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports:

Ca = 1,500 - 10r,

c = 0.6,

Ip = 2,400 - 50r,

G = 2,000,

T = 1,800,

NX = -200.