Assume an economy in which: (i) there are no exports and no imports, (ii) investors always want to spend $200 billion, or I = 200, (iii) government spends $500 billion and tax revenue is $200 billion, (iv) consumption is a linear function of disposable income, C=100+0.8Yd Assume that the government eliminates taxes while keeping government spending the same. (Thus T = 0 and G = 500.) The economy’s consumption function and investment remain unchanged. What is the new equilibrium level of national income?

Assume an economy in which: (i) there are no exports and no imports, (ii) investors always want to spend $200 billion, or I = 200, (iii) government spends $500 billion and tax revenue is $200 billion, (iv) consumption is a linear function of disposable income, C=100+0.8Yd Assume that the government eliminates taxes while keeping government spending the same. (Thus T = 0 and G = 500.) The economy’s consumption function and investment remain unchanged. What is the new equilibrium level of national income?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.B: Algebraic Treatment Of Taxes And Fiscal Policy

Problem 2TY

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