+1-415-670-9189
info@expertsmind.com
Investment and government spending exogenous
Course:- Business Economics
Reference No.:- EM13795678




Assignment Help
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
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
You are considering investing in a start up project at a cost of $100,000. you expect the project to return $500,000 to you at the end of seven years. Given the risk of this p
The fire chief of a medium-sized city has estimated that the initial cost of a new fire station will be $4 million. Annual upkeep costs are estimated at S300,000. Benefits to
A mechanical engineer who recently graduated with a master’s degree is contemplating starting his own commercial heating and cooling company. He can purchase a Web Page design
The investors in exercise 2 are surprised by firm's performance in year 5. Instead of being $20 million, the firm's profits are $40 million. What happens to firm B's stock
While specialization allows firms to produce many goods and services at lower production and transaction costs than individuals can, most households still produce some goods a
The following are some ideas to help you pick a topic for the Market Failure Research Paper assignment. Consult with your instructor if you are having trouble picking a topic.
A small university with many competetiors has determined that the price elasticity of demand for its services is equal to -2.5. The university Board of trustees is considering
Which of the following might describe the behavior of a firm's cost in the short run? If the MPL rises over a particular range of output, then over that range ____. Whenever t