Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Calculate the level of savings when the economy is in equilibrium. b) Find government spending multiplier. c) Find the new equilibrium level of output if the investment is increased by 100 (ΔI = 100).

Given the following model for an economy C = 100 + 0.8Yd G = 800 T = 500 I = 200 a) Calculate the level of savings when the economy is in equilibrium. b) Find government spending multiplier. c) Find the new equilibrium level of output if the investment is increased by 100 (ΔI = 100).

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter19: The Keynesian Model In Action

Section: Chapter Questions

Problem 5SQP

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Question

Question: Given the following model for an economy

C = 100 + 0.8Y_d

G = 800

T = 500

I = 200

a) Calculate the level of savings when the economy is in equilibrium.

b) Find government spending multiplier.

c) Find the new equilibrium level of output if the investment is increased by 100 (ΔI = 100).

d) Find Tax multiplier.

e) Find the new level of output if the lump-sum tax is increased by 100 (ΔT = 100).

f) Find the new level of output if the government spending is increased by 100 and this government expenditure increase is financed by the same amount of increase in lump-sum taxes (ΔG = ΔT = 100).

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