Consider an economy characterized in part by the following functions:
C = 200 + 0.8Yd
AE = 600 + 0.75Y
Ye = 2400
Y* = 2240
Prices are fixed
A. What kind of output gap does this economy have? How large is this gap?
B. If the government wants to close the gap by changing autonomous taxes only, what should be the size and the direction of the change in T°? SHOW YOUR WORK