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Problem 1 (15%) Government plans to apply fiscal policy in 2017

Economics

Problem 1 (15%) Government plans to apply fiscal policy in 2017. Year Actual Real GDP Potential GDP Price Level 2016 KD 16.0 billion KD 16.0 billion 100 2017 KD 16.4 billion KD 16.0 billion 105 Answer the below questions: 1. Which fiscal policy will be applied? Calculate by how much government should change taxes to reach equilibrium, if tax multiplier is equal to -2 in this economy. 2. Will increase in Government purchases be a good decision? Why? Explain the mechanism

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