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Consider an economy in the short run with the price level P fixed at 1. Other relevant information is:
C=100+0.75(Y-T)
I=750
T=-40+(1/3)Y
G=1000
Y=C+I+G
Answer the following:
a) Solve for the equilibrium level of income Y
b) How does the government collect taxes (T) at equilibrium?
c) Is there a surplus or deficit and how much?
d) Calculate the government spending multiplier.
e) Calculate the new equilibrium level of income if G increases from 1,000 to 1,500 (i.e., ΔG = 500)
f) Calculate the lump-sum tax multiplier.
g) Show that C + I +G = Y and that S = I
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