If the economy is at full employment level of output of $1 trillion with governm
ID: 1153724 • Letter: I
Question
If the economy is at full employment level of output of $1 trillion with government purchases of $200 billion and tax rate of 30% and budget in balance a) the adverse shocks to consumption and investment lead real gdp to rise to $1.2 trillion, what’s the level of taxes collected and the governments budget balance?b ) if favourable shocks to consumption and investment lead real gdp to rise to 1.2 trillion what’s the level of taxes collected and governments budget balance? C) If the economy is at full employment level of output of $1 trillion with government purchases of $200 billion and tax rate of 30% and budget in balance a) the adverse shocks to consumption and investment lead real gdp to rise to $1.2 trillion, what’s the level of taxes collected and the governments budget balance?b ) if favourable shocks to consumption and investment lead real gdp to rise to 1.2 trillion what’s the level of taxes collected and governments budget balance? C)Explanation / Answer
Solution-
a) the adverse shocks to consumption and investment lead real gdp to rise to $1.2 trillion, what’s the level of taxes collected and the governments budget balance?
Tax collections fall to 30% of 1.2 trillion = $360 billion. The government is now running a budget surplus of $160 billion a year. Surplus = $360 billion - 200 billion = 160 billion.
b ) if favourable shocks to consumption and investment lead real gdp to rise to 1.2 trillion what’s the level of taxes collected and governments budget balance?
Tax collections rise to 30% of 1.2 trillion = $360 billion. The government is now running a budget surplus of $160 billion a year. Surplus = $360 billion - 200 billion = 160 billion.
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