Determine impact on income increase in government spending

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Reference no: EM1371135

Q. Assume following open economy

C = 300 + 0.80(Y - 125)

I = 150

G = 250

X =115

M = 125+.05Y

a. Determine (solve for) equilibrium level of income or GDP (Y).

b. Determine impact on income of a 50 increase in government spending from 250 to 300.

c. Using original data, compute impact of a 50 decrease in taxes from 125 to 75.

d. If government seeks to raise income to 3,000, explain how much should it raise government spending?

Reference no: EM1371135

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