Now we look at the role taxes play in determining equilibrium income. Suppose we have an economy of the type in Sections 10-4 and 10-5, described by the following functions: C=50+.8YD I=70 G= 200 TR=100 t=20 a. Calculate the equilibrium level of income and the multiplier in this model. b. Calculate also the budget surplus, BS. c. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier? d. Calculate the change in the budget surplus. Would you expect the change in the surplus to be more or less if C = .9 rather than .8? e. Can you explain why the multiplier is 1 when t=1?

Now we look at the role taxes play in determining equilibrium income. Suppose we have an economy of the type in Sections 10-4 and 10-5, described by the following functions: C=50+.8YD I=70 G= 200 TR=100 t=20 a. Calculate the equilibrium level of income and the multiplier in this model. b. Calculate also the budget surplus, BS. c. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier? d. Calculate the change in the budget surplus. Would you expect the change in the surplus to be more or less if C = .9 rather than .8? e. Can you explain why the multiplier is 1 when t=1?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 7SQ

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Question

Now we look at the role taxes play in determining equilibrium income. Suppose we have an economy of the type in Sections 10-4 and 10-5, described by the following functions:

C=50+.8YD

I=70

G= 200

TR=100

t=20

a. Calculate the equilibrium level of income and the multiplier in this model.

b. Calculate also the budget surplus, BS.

c. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier?

d. Calculate the change in the budget surplus. Would you expect the change in the surplus to be more or less if C = .9 rather than .8?

e. Can you explain why the multiplier is 1 when t=1?

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