Yahoo Answers is shutting down on May 4th, 2021 (Eastern Time) and the Yahoo Answers website is now in read-only mode. There will be no changes to other Yahoo properties or services, or your Yahoo account. You can find more information about the Yahoo Answers shutdown and how to download your data on this help page.
Trending News
BEST ANSWER UP FOR GRABS!!! Short Economics Question that I'm studying! Need some help! Thanks!?
Suppose we have an economy described by the following functions:
C= 50+.8YD
I bar= 70
G bar= 200
TR bar= 100
t= .20
(a)(i) Calculate the equilibrium level of income and (ii)the multiplier in this model.
(b) Calculate the budget surplus, BS.
(c) Suppose that t increases to .25. (i)What is the new equilibrium income? (ii)And the new multiplier?
(d) (i)Calculate the change in budget surplus. (ii)Would you expect the changes in the surplus to be more or less if C= .9 rather than .8?
(e) Can you explain why the multiplier is 1 when t=1?
1 Answer
- Anonymous1 decade agoFavorite Answer
A. Y=C+I+G, government transfer payment is not included in GDP.
Y=50+.8(Y-T)+70+200.
Y=50+.8Y-.20Y+70+200
(1-.8+.20)Y=50+70+200
Y=320/.40=800.,multiplier=1/0.4=2.5
B. G-T=200-.2x800
budget deficit=200-160= 40.
C. multiplier= 1/(1-.8+.25)=2.22.The new level of income=320/.45=711.11
D. budget deficit=200-.25x711.11=22.22.If MPC=.9,The multiplier=1/(1-.9+.25)=1/.35=2.86
The new level of income=320x2.86=915.2. Budget surplus=200-.25x915.2=200-228.8=28.8.
E. if t=1, there will be no income left for consumption, or 0.8YD=0
In this case multiplier=1/1=1
Source(s): Anjaree