question archive Consider the following model of a closed economy in which household income taxes are proportional to income: Yd = C+I+G Y = yd
Consider the following model of a closed economy in which household income taxes are proportional to income: Yd = C+I+G Y = yd
Subject:EconomicsPrice: Bought3
Consider the following model of a closed economy in which household income taxes are proportional to income: Yd = C+I+G Y = yd . C = 400 + 0.60(Y - T) . I = 1200 G = 1000 . T = 0.20Y a. What is "autonomous expenditure" for this economy? Hint: by definition, it will not depend on the value of real aggregate income (Y). b. What is the short run equilibrium value of real aggregate income (Y) for this economy? c. All else equal, what would the new short run equilibrium value of income be, if government purchases were to increase from 1000 to 1500? d. What is the spending multiplier (AY* /AE, ) for this economy? Hint: it is NOT equal to 1/(1- 0.60). e. Suppose that the government is required by law to keep its budget balanced, so that government purchases must always equal tax revenue (G = T = 0.20Y). What is the basic spending multiplier in that case? f. Would a balanced budget requirement make a nation's real income more or less sensitive to spending shocks? Explain.
