(b) Assume that a three-sector economy in Country W. The amount of autonomous consumption is RM300 million with the proportion of an increase in income that is spent on consumption is 0.5. An induced tax of 20% is imposed by the country. The amount of investment is RM250 million, and the amount of government spending is RM150 million. (i) Calculate the national income equilibrium. (ii) Based on your answer in (i), show the aggregate expenditure graph. (iii) Explain what would happen to the national income equilibrium if the investment changes by RM100 million.

(b) Assume that a three-sector economy in Country W. The amount of autonomous consumption is RM300 million with the proportion of an increase in income that is spent on consumption is 0.5. An induced tax of 20% is imposed by the country. The amount of investment is RM250 million, and the amount of government spending is RM150 million. (i) Calculate the national income equilibrium. (ii) Based on your answer in (i), show the aggregate expenditure graph. (iii) Explain what would happen to the national income equilibrium if the investment changes by RM100 million.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1DQ

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