Suppose you have an open economy with Government sector imposing tax to finance its expenditures. This economy is described as follows: (in billion dollars) C = 250 + 0.85YD where tax rate is 10 percent. autonomous investment expenditures are 140 billion dollars, autonomous government expenditures are 80 billion dollars, autonomous transfer payments are 100 billion dollars, NX = 0 a) Calculate the equilibrium level of income in this model. b) Calculate the multiplier. c) Calculate the tax revenues (TA). d) Calculate the budget surplus. e) If investment expenditures decrease by 25 billion dollar what would be the change in equilibrium income? How much is the new equilibrium income?
Suppose you have an open economy with Government sector imposing tax to finance its expenditures. This economy is described as follows: (in billion dollars) C = 250 + 0.85YD where tax rate is 10 percent. autonomous investment expenditures are 140 billion dollars, autonomous government expenditures are 80 billion dollars, autonomous transfer payments are 100 billion dollars, NX = 0 a) Calculate the equilibrium level of income in this model. b) Calculate the multiplier. c) Calculate the tax revenues (TA). d) Calculate the budget surplus. e) If investment expenditures decrease by 25 billion dollar what would be the change in equilibrium income? How much is the new equilibrium income?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you have an open economy with Government sector imposing tax to finance its expenditures. This economy is described as follows: (in billion dollars)
C = 250 + 0.85YD where tax rate is 10 percent.
autonomous investment expenditures are 140 billion dollars,
autonomous government expenditures are 80 billion dollars,
autonomous transfer payments are 100 billion dollars,
NX = 0
a) Calculate the equilibrium level of income in this model.
b) Calculate the multiplier.
c) Calculate the tax revenues (TA).
d) Calculate the budget surplus.
e) If investment expenditures decrease by 25 billion dollar what would be the change in equilibrium income? How much is the new equilibrium income?
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