Compute the resulting change in consumption expenditure

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Reference no: EM1360261

The following information is about a closed economy.

Investment Expenditure is fixed at 450,

Consumption is 80% of personal disposable income,

Initially government Expenditure is 250,

Direct taxes are 10% of income.

(a) Identify the initial equilibrium income for the economy. [4]

(b) Calculate the amount of (i) Consumption expenditure. [1] (ii) Tax revenue [1] (iii) Government budget deficit/surplus [1]

Suppose now that government expenditure is increased by 500 and the tax rate raised from 10 to 25%.

(d) Compute the resulting change in consumption expenditure. [2]

(e) What is the new equilibrium income level for the economy? [2]

(f) What is the government budget deficit/surplus? [1]

(g) Calculate the multiplier. [1]

Reference no: EM1360261

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