Assume an economy in which: (i) there are no exports and no imports, (ii) investors always want to spend $200 billion, or I = 200, (iii) government spends $500 billion and tax revenue is $200 billion, (iv) consumption is a linear function of disposable income, C=100+0.8Yd Assume that the government eliminates taxes while keeping government spending the same. (Thus T = 0 and G = 500.) The economy’s consumption function and investment remain unchanged. What is the new equilibrium level of national income?
Assume an economy in which: (i) there are no exports and no imports, (ii) investors always want to spend $200 billion, or I = 200, (iii) government spends $500 billion and tax revenue is $200 billion, (iv) consumption is a linear function of disposable income, C=100+0.8Yd Assume that the government eliminates taxes while keeping government spending the same. (Thus T = 0 and G = 500.) The economy’s consumption function and investment remain unchanged. What is the new equilibrium level of national income?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume an economy in which:
(i) there are no exports and no imports,
(ii) investors always want to spend $200 billion, or I = 200,
(iii) government spends $500 billion and tax revenue is $200 billion,
(iv) consumption is a linear function of disposable income, C=100+0.8Yd
Assume that the government eliminates taxes while keeping government
spending the same. (Thus T = 0 and G = 500.) The economy’s consumption function and
investment remain unchanged. What is the new equilibrium level of
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