Answer to Question #6251 in Macroeconomics for sam

Question #6251
In a closed economy the following holds: ˆHousehold consumption C is given by the consumption function: C = 100 + 0.75Yd ˆPlanned investments are I = 250 (independent of Y ). ˆHousehold disposable income: Yd = Y − T, where Y is production. ˆTaxes depend on income according to: T = −200 + 0.5Y . ˆPublic consumption: G = 1000. (a) Use the simple Keynesian model of the goods market to calculate equilibrium production Y , i.e. the level of production compatible with planned expenditure in the form of consumption and investments. (b) What is the public budget deficit? (c) Suppose that the government increases public consumption to G = 1100. What is production in the new equilibrium? (d) What is the public deficit after the increase of public consumption? (e) What is the multiplier for an (unfinanced) increase in public consumption.
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