Problem
I only need an answer for parts d, e, and f please. I have posted the whole question though, in case that you need to refer back to it.
Monetary & Fiscal Policy, and Debt:
Given:
1)Y = C + I + G + NX
2)C = 49 + 0.9DI
3)T = 10 + 1/3Y
4)I = 400 - 2,000(i)
5)G = 800 6)NX = 60
a) If the FED decides to set the interest rate at i = 0.05, what will be equilibrium GDP?
b) State the Government Budget and indicate whether it is in surplus or in a deficit.
c) A recession hits the economy which leads to a reduction in consumption, specifically assume for now: C = 106 + 0.6DI. Compute the new GDP and the new budget.
d) Democrats and Republicans are arguing about whether to reduce taxes or increase Government expenditure to stimulate the economy. Since they haven't found a compromise, yet, the FED decides to step in and take some actions. i. Describe the policy tools the FED can use. ii. If Janet Yellen (current Chair of the FED) asked you for advice on which policy tool to use, what would you recommend her to do and why? (Hint: The "why" part is what I really care about here. You have to justify your choice, otherwise you get zero credit for this question.)
e) Republicans won the argument so that the government cuts the tax rate from 1/3 to 1/6 while at the same time the FED lowers the interest rate from 0.05 to 0.02. What will be the new GDP? Note that the consumption function from part c) is still valid here.
f) Finally, given your results in e), discuss the implications on government debt and whether you find that troubling or not.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.