Economy of wonderland

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Suppose that the economy of Wonderland is described by the following equations: Planned consumption: C = 200 + 0.8Yd Disposable income: Yd = Y - T Income taxes: T = 200 Planned gov (ernment expenditure: G = 100 Planned investment: I = 200 Planned export: X = 200 Planned import: M = 0.2Y, All variables are measured in real value. a. What is the equilibrium output? Please show your calculation. b. Suppose that the government on Wonderland succeeds in reducing income taxes from 200 to 160. What are new equilibrium output and the tax multiplier? c. List two arguments that are likely to be used in support of such a tax cut in part (b). Briefly explain your answer. d. List two arguments that might be used to oppose such a tax cut in part (b). Briefly explain your answer.

Reference no: EM132503751

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