3. Fiscal Policy and Long-term Growth 3.1 Y C+I+G 100 + 0.75YD YD Y – T -20 + 0.2Y 150 G 50 T a.) What is the level of the equilibrium income? b.) What is the value of the investment multiplier? c.) Explain how the tax function acts as an "automatic stabilizer" of the economy if there is a drop in investment level.
3. Fiscal Policy and Long-term Growth 3.1 Y C+I+G 100 + 0.75YD YD Y – T -20 + 0.2Y 150 G 50 T a.) What is the level of the equilibrium income? b.) What is the value of the investment multiplier? c.) Explain how the tax function acts as an "automatic stabilizer" of the economy if there is a drop in investment level.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.5P: Explain the difference between the government purchases multiplier and the net tax multiplier. If...
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Step 1
In a closed economy, goods market equilibrium is attained when the total output (Y) produced is equal to the total output demanded by households, firms, and government or aggregate demand (AD).
AD = C+I+G
Total output is given by;
Y = C+I+G
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