Calculate equilibrium income

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Reference no: EM131389039

Let's study an economy where:

C = 40 + 0.8Yd

I = 200

G = 400

T = 300

a. Calculate equilibrium income. How is the equilibrium income divided among consumption, saving, investment, and government expenditures?

Does S = I? Does S + T = G + I? Why does one relation hold but not the other?

b. Suppose government policy makers decide that they will change government spending (G) to raise aggregate output by $100 billion. How much will the spending need to be changed?

c. Suppose government policy makers decide that they will change taxes (T) to raise aggregate output by $100 billion. How much will the taxes need to be changed?

Reference no: EM131389039

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