January 5, 2018
###### Specifically, what areas should the company concentrate on first? Why? How would you recommend that Amazon deal with these issues in the most cost effective manner?
January 5, 2018

Assume that in 2011, the following prevails in the Republic of Nurd:
Y = \$200 G = \$0
C = \$160 T = \$0
S = \$40
I (planned) = \$30
Assume that households consume 80 percent of their income, they save 20 percent of
their income, MPC = .8, and MPS = .2. That is, C = .8Yd and S = .2Yd.
a. Is the economy of Nurd in equilibrium? What is likely to happen in the coming months
if the government takes no action?
b. If \$200 is the “full-employment” level of Y, what fiscal policy might the government
follow if its goal is full employment?
c. If the full-employment level of Y is \$250, what fiscal policy might the government
follow?
d. Suppose Y = \$200, C = \$160, S = \$40, and I = \$40. Is Nurd’s economy in equilibrium?
e. Starting with the situation in part d, suppose the government starts spending \$30 each
year with no taxation and continues to spend \$30 every period. If I remains constant, what
will happen to the equilibrium level of Nurd’s domestic product (Y)? What will the new
levels of C and S be?

f. Starting with the situation in part d, suppose the government starts taxing the
population \$30 each year without spending anything and continues to tax at that rate
every period. If I remains constant, what will happen to the equilibrium level of Nurd’s
domestic product (Y)? What will be the new levels of C and S? How does your answer to