Consider an economy described by the following equations: C = 300 + 0.90 (Y – T) (Consumption) I = $200 (Investment) G = $300 (Government spending) T = $200 (Taxes) Determine the equilibrium level of national income. Suppose government spending increases to $400. What is the new level of income? What is the government spending multiplier? Suppose taxes increase to $300. What is the new level of income? What is the government tax multiplier? Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?
Consider an economy described by the following equations: C = 300 + 0.90 (Y – T) (Consumption) I = $200 (Investment) G = $300 (Government spending) T = $200 (Taxes) Determine the equilibrium level of national income. Suppose government spending increases to $400. What is the new level of income? What is the government spending multiplier? Suppose taxes increase to $300. What is the new level of income? What is the government tax multiplier? Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section11.B: Algebraic Treatment Of Taxes And Fiscal Policy
Problem 1TY
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Consider an economy described by the following equations:
C = 300 + 0.90 (Y – T) (Consumption)
I = $200 (Investment)
G = $300 (Government spending)
T = $200 (Taxes)
- Determine the equilibrium level of
national income . - Suppose government spending increases to $400. What is the new level of income?
What is the government spending multiplier?
- Suppose taxes increase to $300. What is the new level of income?
What is the government tax multiplier?
- Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?
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