Macro variables in a closed economy

Reference no: EM1314322

In a closed economy without a government sector, consumption is determined as 80% of the income available to households. Investment is autonomous at a level of £450.

Now suppose that that the government levies direct taxes of 10% of income and undertakes expenditure of £250, with investment back at £450:

A. What is the equilibrium level of income?

B. Calculate disposable income, consumption and aggregate demand.

C. What is the size of the government budget deficit?

D. Calculate the value of the multiplier if investment increased by £50.

E. Compare your answers to c. and h., how and why do these two differ?

Reference no: EM1314322

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