Answered: Consider a closed economy with a…

Consider a closed economy with a government. Consumption is given by C = 1,000 + 0.8Yd Further, t = 0.2, I = 500 and G = 300. Compute the equilibrium level of output. Suppose that G rise

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.B: Algebraic Treatment Of Taxes And Fiscal Policy

Problem 1TY

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Question

Consider a closed economy with a government. Consumption is given by

C = 1,000 + 0.8Y_dFurther, t = 0.2, I = 500 and G = 300.

Compute the equilibrium level of output.
Suppose that G rises to 400. How much of Y rises as a result?
Compute the size of the expenditure multiplier.

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