You are given the following income-expenditures model for the economy of Vulcan.

ID: 1109231 • Letter: Y

Question

You are given the following income-expenditures model for the economy of Vulcan. C = 300 + .9Yd T = 200 G = 300 I = 250

1. What would the level of expenditures be if the economy were operating at $10,000?

2. Draw a graph that illustrates this.

3. Using your answer from above, make a forecast for the future of the Vulcan economy and explain your reasoning.

4. The policymakers of Vulcan are considering balancing the budget. What would have to change for this to happen?

5. Using the government spending and tax multipliers, explain how balancing the budget would impact Vulcan’s macroeconomy.

1. AE= C+I+G

AE = 300+ 0.9Yd+250+300

AE= 300+0.9(Y-T)+250+300

AE= 850+0.9(Y-200)

AE= 850+0.9Y-180

AE= 670+0.9Y

As we know that the economy is operating at $10000

AE = 670+0.9 (10000)

AE= 670+9000

AE = 9670

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