You are given the following income-expenditures model for the economy of Vulcan.
C = 200 + .8Yd
T = 25
G = 75
I = 125
1. What is the equilibrium level of income in Vulcan?
2. What would the level of expenditures be if the economy were operating at $2000? Make a forecast for the future of the Vulcan economy.
3. The policymakers of Vulcan are considering stimulating the economy to offset a decline in consumer confidence. They are debating decreasing taxes by 15 or increasing government spending by 15. Which of these policies (changing T or changing G) will have a greater positive impact on national income? Be specific and show your work.
4. To offset Vulcan’s fiscal policy changes, the central bank of Vulcan decides to raise the interest rate. Describe how this would impact the money market of Vulcan. Explain ONE monetary policy tool that the central bank could utilize to create this change in the money market.