What is the change in the budget surplus

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Suppose Congress decides to reduce transfer payments (such as welfare) but to increase government purchases of goods and services by an equal amount. That is, it undertakes a change in fiscal policy such that ?G -?TR.

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 .8, t .25, and Y0 600. Now let ? 10 and ?TR 10.

b. Find the change in equilibrium income, ?Y0 .

c. What is the change in the budget surplus, ?BS ? Why has BS changed? Empir

Reference no: EM131136525

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