Consider an economy described by the following function: C = 20 + 0.80

1.	Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100. (i) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (ii) If government expenditure increases by 30, what is the impact on equilibrium income? (iii) If a lump sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?
Answer» Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100. (i) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (ii) If government expenditure increases by 30, what is the impact on equilibrium income? (iii) If a lump sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100. (i) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (ii) If government expenditure increases by 30, what is the impact on equilibrium income? (iii) If a lump sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

Answer»

Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100.

(i) Find the equilibrium level of income and the autonomous expenditure multiplier in the model.

(ii) If government expenditure increases by 30, what is the impact on equilibrium income?

(iii) If a lump sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?