Reference no: EM132285887
Assume the following economy without a government sector
Autonomous Consumption = £5,000
Marginal Propensity to Consume = 0.8
Business Investment = £10,000
A. Find the equilibrium size of income Y
B. Calculate the increase in income if Business Investment increases by £5,000 and calculate the Multiplier of Business Investment
C. Assume now that a government sector is introduced, while business investment is still £10,000. Government spending injects £10,000 into the economy. However, in order to balance its budget the government levies property taxes (that is, unrelated to the level of income) to £10,000
Find the new equilibrium size of income and calculate the multiplier of the balanced budget - the £10,000 of public spending
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