I need help with d and e 2) For both political and macroeconomic reasons governments are often reluctant to runbudget deficits. Here, we examine whether policy changes in G and T that maintain abalanced budget are macroeconomically neutral. Put another way, we examine whether itis possible to affect output through changes in G and T so that the government budgetremains balanced. Start from the equilibrium condition in the goods market:Y = c +c₁ (Y-T) +I+Ga. by how much does Y increase when G increases by one unit?b. By how much does Y decrease when T increases by one unit?c. Why are your answers to (a) and (b) different?Suppose the economy starts with a balanced budget: T=G. If the increase in G is equal tothe increase in T, then the budget remains in balance. Let us now compute the balancedbudget multiplier.d. Suppose that both G and T increase by one unit. Using your answers to (a) and (b),what is the change in equilibrium GDP? Are balanced budget changes in G and Tmacroeconomically neutral?e. How does the specific value of the propensity to consume affect your answers to (d)?Why?

Budget Deficit: A situation where a government spends more money than it collects in revenue,…

d. Suppose that both G and T increase by one unit. Using your answers to (a) and (b), what is the change in equilibrium GDP? Are balanced budget changes in G and T macroeconomically neutral? e. How does the specific value of the propensity to consume affect your answers to (d)? Why?

d. Suppose that both G and T increase by one unit. Using your answers to (a) and (b), what is the change in equilibrium GDP? Are balanced budget changes in G and T macroeconomically neutral? e. How does the specific value of the propensity to consume affect your answers to (d)? Why?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter17: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 7SQP

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Question

I need help with d and e

2) For both political and macroeconomic reasons governments are often reluctant to run
budget deficits. Here, we examine whether policy changes in G and T that maintain a
balanced budget are macroeconomically neutral. Put another way, we examine whether it
is possible to affect output through changes in G and T so that the government budget
remains balanced. Start from the equilibrium condition in the goods market:
Y = c +c₁ (Y-T) +I+G
a. by how much does Y increase when G increases by one unit?
b. By how much does Y decrease when T increases by one unit?
c. Why are your answers to (a) and (b) different?
Suppose the economy starts with a balanced budget: T=G. If the increase in G is equal to
the increase in T, then the budget remains in balance. Let us now compute the balanced
budget multiplier.
d. Suppose that both G and T increase by one unit. Using your answers to (a) and (b),
what is the change in equilibrium GDP? Are balanced budget changes in G and T
macroeconomically neutral?
e. How does the specific value of the propensity to consume affect your answers to (d)?
Why?

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