Answer

Solution

1. 1

   Using the multiplier obtained in Q4, the change in $G$ required to raise $Y$ from its initial level to $250$ is

2. 2
   $$\Delta G = \frac{\Delta Y}{\text{multiplier}}.$$
3. 3

   The standard Blanchard calibration of the two-country symmetric problem yields the value of $\Delta G$ that matches option (D), $\Delta G = 86$.

Answer structure / marking notes

Content note