Answer to Question #50768 in Macroeconomics for bob
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
(d) Nowsupposethatthegovernmentdecidestouseitsspendingpowertorestorenationalincometoits original level. By how much must the government increase G to restore the original level of national income? What will happen to the government’s budget balance? How do you explain the new level of the budget balance compared to that in part (c) and in part (b)?
(a) AE = Y = C + I + G + NX = 50 + 0.8(Y - 0.3Y) + 400 + 500 + 650 - 0.36Y = 0.2Y + 1600
Y = 0.2Y + 1600
Y = 1600/0.8 = 2000
So, the equilibrium level of national income is 2000.
The value of the multiplier is:
m = 1/(1 - c*(1 - t) + im) = 1/(1 - 0.8*(1 - 0.3) + 0.36) = 1/0.8 = 1.25
Need a fast expert's response?Submit order
and get a quick answer at the best price
for any assignment or question with DETAILED EXPLANATIONS!