Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 27.B, Problem 2TY
To determine
The value of government spending that would make GDP equal to 1,800.
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C is consumer expenditure
T is tax revenue
Y is aggregate output
I is investment expenditure
r is interest rate
G is government expenditure
L is money demand
M is money supply
Derive the relevant matrix inverse (do not use Cramer's rule) to solve for the equilibrium level of income in
terms of government expenditure (G). At what level of public spending does the government balance its
budget? (Hint: the endogenous variables are Y and r).
C = 450 + 0.4Y
I = 350
G = 150
X = 70
Z = 35 + 0.1Y
T = 0.15Y
Yf = 1550
Calculate the tax revenue to the government of this country when the economy remains in equilibrium.
Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%.
Before the government decreased the tax rate, how much of government
spending was required to bring the economy to full employment?
Suppose that the consumer’s consumption demand function is given by Cd = 0.8(Y−T)+10. Investment is Id = 20, government expenditure is G = 10, and tax is T = 10.
What is the equilibrium GDP (income)?
Suppose that government expenditure increases by 10 units while tax is unchanged. How will GDP change? What is the multiplier?
Suppose that government expenditure increases by 10 units while tax also increases by 10 units. How will GDP change? What is the multiplier?
Chapter 27 Solutions
Economics: Principles & Policy
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