Answer to Question #12962 in Macroeconomics for Rachel
Suppose we add government sector with: T=200+0.25*Y, G=990 where T is taxes (net of treansfers) and G is government spending on goods and services.
a) Is the government running a surplus or a deficit? Explain your answer
b) Explain the reason why the multiplier could decrease in value.
a) If taxes are bigger then government spandings that government running a deficit because of decreasing GDP and restricting existing resources Otherwise, government running a surplus.
b) multiplier could decrease because of impact of taxes, when taxes are growing up , GDP is growing down/ Changing of GDP is decreasing and multiplier in this case could decrease too.