Investment and government spending exogenous
Course:- Business Economics
Reference No.:- EM13795678

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Business Economics

Consider the following simple model with investment and government spending exogenous:

Y = C + I + G

C = a + bYd

Disposable income Yd is given by Y - T where T is total taxes. Suppose that taxes are not directly related to income, so that T can be increased or decreased independent of income.

a. Derive the change in Y associated with an increase in taxes T. Show the results graphically and algebraically. What is the tax multiplier?

b. Now increase government spending G and taxes T by the same amount. For this change, the balanced government budget deficit G - T does not change. If the budget was balanced before, it will still be balanced. What happens to income Y in this case? Perhaps surprisingly, it increases. Calculate by how much. The result is called the balanced budget multiplier.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
The first effort at converting “republican ideology” into a real government resulted in the Articles of Confederation. What were the strengths/weaknesses of this government? W
An economy has $72, to divide between Hamlet and Ophelia. What are the Pareto efficient allocations of the $72? Calculate the allocation of money that maximizes utilitarian so
Think of a business firm you recently visited (such as Walmart, Home Depot, Red Lobster, Barnes & Noble, McDonald’s, etc.). What motivated the producers of all the individual
A firm sells its product in a perfectly competitive market where other firms charge a price of $120 per unit. The firm’s total costs are C(Q) = 60 + 8Q + 2Q2. How much output
Using neo-classical model of labor-leisure choice to answer the following questions. How does an increase in wage rate change the optimal consumption-leisure combination chose
You run a company, GizmoNet, that produces gizmos. Gizmos hook onto Nintendo Game Boys (hand-held electronic game players), allowing users to access the Internet using wireles
Brought to Europe by the explorer James Cook in 1771, a tattoo is made by inserting indelible ink into the dermis layer of the skin. Though that does not sound particularly ap
Suppose that hospitals use nurses (N), doctors (D) to perform surgeries (Q). The production function for surgeries is: Q = F(N;D), where F(N;D) is some function that increases