Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment = £30,000 1. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment Assume now that a government sector is introduced, while business investment is still I=£30,000. Government spending injects G=£50,000 into the economy. However, in order to finance its expenditure, the government levies an income tax at a rate of 25%. 2. Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment Identify whether the government balance is balanced or not when I=30,000 and G=50,000
Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment = £30,000 1. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment Assume now that a government sector is introduced, while business investment is still I=£30,000. Government spending injects G=£50,000 into the economy. However, in order to finance its expenditure, the government levies an income tax at a rate of 25%. 2. Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment Identify whether the government balance is balanced or not when I=30,000 and G=50,000
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 6SQ
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Assume the following economy:
Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment = £30,000
1. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment
Assume now that a government sector is introduced, while business investment is still I=£30,000. Government spending injects G=£50,000 into the economy. However, in order to finance its expenditure, the government levies an income tax at a rate of 25%.
2. Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment
Identify whether the government balance is balanced or not when I=30,000 and G=50,000
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