Equilibrium level of income

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Assume that in 2008, the following prevails in the republic of Nurd: Y=$200 G=$0 C=$160 T=$0 S=$40 I=(planned)=$30 Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC+.8, also MPS=.2. That is, C=.8y also S=.2y

a. Is the economy of Nurd in equilibrium? Illustrate what is Nurd's equilibrium level of income? Illustrate what is likely to happen in the coming months if the government takes no action?

b. If $200 is the full employment level of Y, Illustrate what fiscal policy might the government follow if its goal is full employment? c. If the full employment level of Y is $250, illustrate what fiscal policy might the government follow? d. Assume Y=$200, C=$160, S=$40, and I=$40. Is Nurd's economy in equilibrium? e. Starting with the situation in part d, Assume the government starts spending $30 every period. If I remains constant, illustrate what will happen to the equilibrium level of Nurd's domestic product(Y)? Illustrate what will the new levels of C also S be? f. Starting with the situation in part d, Assume the government starts taxing the population $30 each year without spending anything also continues to tax at that rate every period. If I remain constant, illustrate what will happen to the equilibrium level of Nurd's domestic product (Y)? Illustrate what will be the new levels of C also S? How does your answer to part f differ from our answer to part e? Why?

Reference no: EM139543

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