Assume an economy with 1000 consumers. Each consumer has income in the current p

Question

Assume an economy with 1000 consumers. Each consumer has income in the current period of 50 units and future income of 60 units and pays a lump-sum tax of 10 in the current period and 20 units in the future period. The market real interest rate is 8%. Of the 1000 consumers, 500 consume 60 units in the future, while 500 consume 20 units in the future.

b) Determine aggregate private savings, aggregate consumption in each period, government spending in the current and future periods and the current-period government deficit.

Explanation / Answer

Aggregate private savings: APS = 20*500 - 20*500 = 0 Aggregate consumption Period 1: 500*20 + 500*60 = 40,000 Period 2: 500*60 + 500*20 = 40,000 Aggregate income: Period 1: 40*500 + 40*500 = 40,000 Period 2: 40*500 + 40*500 = 40,000 Government spending: Period 1: 40,000 - 40,000 = 0 Period 2: 40,000 - 40,000 = 0 Taxation: Period 1: 1000*10 = 10,000 Period 2: 1000*20 = 20,000 So, the government runs a surplus of 10,000 in the first period and 20,000 in the second period.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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