Question

C= 450 +0.4Y
I=350
G=150
X=70
Z= 35+0.1Y
T= 0.15Y
Yf= 1550

Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%

Answer 1

$Yf=C-T+I+G+X-Z$

$1550=450+0.4Y-0.15Y+350+150+70-35-0.1Y$

$Y=3766.67$ - equilibrium income with tax

$1550=450+0.4Y+350+150+70-35-0.1Y$

$Y=1883.33$ - new equilibrium income without tax