An economy is described by the following equations: Y = C+ I, + G %3D C = a + b(Y – T) T = tY %3D Let a = 20, b = 0.75, t = 0.25, I, , = 100, G = 240 %3D (a) Determine the value of the multiplier for this economy, and find the equilibrium value of Y. (b) Find the values of C, T and G-T, given your answer to part (a). (c) Describe what would happen if the government tried to eliminate its budget deficit by undertaking a cut in G equal to the current value of G-T.

An economy is described by the following equations: Y = C+ I, + G %3D C = a + b(Y – T) T = tY %3D Let a = 20, b = 0.75, t = 0.25, I, , = 100, G = 240 %3D (a) Determine the value of the multiplier for this economy, and find the equilibrium value of Y. (b) Find the values of C, T and G-T, given your answer to part (a). (c) Describe what would happen if the government tried to eliminate its budget deficit by undertaking a cut in G equal to the current value of G-T.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter2: Mathematics For Microeconomics

Section: Chapter Questions

Problem 2.4P

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