What is the equilibrium level of income

Reference no: EM13183421

Given:

C = 2000 + 0.8Yd

I = 400

Yf = 14000

1. What levels of G and T are needed to both move to full employment at Yf and balance the budget?

Now assume economy is operating at full employment and that the budget is balanced. Suppose that the government imposes an income tax with a marginal tax rate of 0.25. Base your answers off of question 1.

2. What is the equilibrium level of income?

3. What is the government expenditures multiplier?

3. What is the budget deficit or surplus?

4. Suppose the government transfers the magnitude of the budget deficit/surplus to the household sector. What is the new level of equilibrium Y?

5. What is the value of the transfer payments multiplier?

6. What is the new budget deficit or surplus?

7. What increase in G is now required to move economy to Yf? What is the new gap (inflationary or deflationary)?

Reference no: EM13183421

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