Expert economists in the economy of Yuk estimate the following:
BILLION YUKS
Real output/income 1,000
Government purchases 200
Total net taxes 200
Investment spending (planned) 100
Assume that Yukkers consume 75 percent of their disposable
incomes and save 25 percent.
a. You are asked by the business editor of the Yuk Gazette to predict the events of the next few months. By using the data given, make a forecast. (Assume that investment is constant.)
b. If no changes were made, at what level of GDP (Y) would the economy of Yuk settle?
c. Some local conservatives blame Yuk’s problems on the size of the government sector. They suggest cutting government purchases by 25 billion Yuks.What effect would such cuts have on the economy? (Be specific.)