Problem 1 (30 points) Income (Y) Net Tax (T) Disposable Income (Y D ) Consumptio
ID: 1208951 • Letter: P
Question
Problem 1 (30 points)
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption (C)
Saving (S)
Investment (I)
Gov. Spending (G)
TE
10,000
1,000
9,000
7,700
1,300
2,000
1,500
11,200
12,000
1,000
11,000
9,300
1,700
2,000
1,500
12,800
13,000
1,000
12,000
10,100
1,900
2,000
1,500
13,600
15,000
1,000
14,000
11,700
2,300
2,000
1,500
15,200
16,000
1,000
15,000
12,500
2,500
2,000
1,500
16,000
18,000
1,000
17,000
14,100
2,900
2,000
1,500
17,600
20,000
1,000
19,000
15,700
3,300
2,000
1,500
17,200
g) By how much will the equilibrium output level increase (decrease) if the government spending (G) decrease by 800?
h) By how much will the equilibrium output level increase (decrease) if the government spending (G) decrease by 300 and at the same time, the government cuts taxes by the same amount of 300?
Income (Y)
Net Tax (T)
Disposable Income (YD)
Consumption (C)
Saving (S)
Investment (I)
Gov. Spending (G)
TE
10,000
1,000
9,000
7,700
1,300
2,000
1,500
11,200
12,000
1,000
11,000
9,300
1,700
2,000
1,500
12,800
13,000
1,000
12,000
10,100
1,900
2,000
1,500
13,600
15,000
1,000
14,000
11,700
2,300
2,000
1,500
15,200
16,000
1,000
15,000
12,500
2,500
2,000
1,500
16,000
18,000
1,000
17,000
14,100
2,900
2,000
1,500
17,600
20,000
1,000
19,000
15,700
3,300
2,000
1,500
17,200
Explanation / Answer
g) If G decreases by 800 then TE = C+I+G
So we see that TE=Y when Y=12000 so new equilibrium output level decreases by 4000
h)
We see that equilibrium output level remains same
Income (Y) Net Tax (T) Disposable Income (YD) Consumption (C) Saving (S) Investment (I) Gov. Spending (G) TE 10,000 1,000 9,000 7,700 1,300 2,000 700 10,400 12,000 1,000 11,000 9,300 1,700 2,000 700 12,000 13,000 1,000 12,000 10,100 1,900 2,000 700 12,800 15,000 1,000 14,000 11,700 2,300 2,000 700 14,400 16,000 1,000 15,000 12,500 2,500 2,000 700 15,200 18,000 1,000 17,000 14,100 2,900 2,000 700 16,800 20,000 1,000 19,000 15,700 3,300 2,000 700 18,400Related Questions
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