MACROECONOMICS Q. - Budget- deficit? surplus? or balance? The following is infor

Question

MACROECONOMICS Q. - Budget- deficit? surplus? or balance?

The following is information for the economy of Tandor, where taxes are wholly autonomous:

C = 50 + 0.6YD where YD = (Y – T)

   G = T = 350

I = 140

XN = 107 – 0.1Y

PLEASE ANSWER THE FOLLOWING:
a. The value of equilibrium income is $ ____________

b. At equilibrium, the amount of the budget balance/deficit/surplus is $____________ ?

c. If government increased both its spending and taxes by $40, the new equilibrium income would be $___________.

C = 50 + 0.6YD where YD = (Y – T)

   G = T = 350

I = 140

XN = 107 – 0.1Y

Explanation / Answer

Answer

(a) Equilibrium Income is given by

Y = C + I + G + NX

From above table we have

Y = 50 + 0.6(Y - 350)+ 140 + 350 + 107 – 0.1Y

0.5Y = 437 => Y = 874

Hence Equilibrium Level of Income = Y = 874

(b) As T = G = 350 hence Budget is Balanced Budget. Hence At equilibrium the amount of Budget Balanced is $0(i.e. niether surplus nor deficit)

(c) Similarly as above but now G = T = 350 + 40 = 390

Hence Equilibrium Level of Income

Y = 50 + 0.6(Y - 390)+ 140 + 390 + 107 – 0.1Y

0.5Y = 50 + 140 + 390 + 107 - 390*0.6 = 453

Hence New equilibrium level of Income = $906

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.