Find the change in equilibrium income

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Reference no: EM13832885

Suppose the Congress decides to reduce transfer payments but to increase government purchases of goods and services by an equal amount. That is it undertakes a change in fiscal policy such that ΔG = - ΔTR

A. Would you expect equilibrium income to rise or fall as a result of this change? Why? Check your answer with the following example: Suppose that, initially, c=0.8, t=0.25, and . Now let ΔG = 10 and ΔTR= -10.

B. Find the change in equilibrium income .

C. What is the change in the budget surplus ΔBS? Why has BS changed?

Reference no: EM13832885

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