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Suppose we have an economy described by the following [Note: '0' denotes autonomous]
c= 150+0.8YD
Io = 80
Go = 200
TRo = 150
TAo = 50
t = 0.20
a. Calculate the equilibrium level of income and the multiplier in the model.
b. Calculate also the budget deficit?
c. Suppose that t increases to 0.25. what is the new equilibrium income? What is the value of the new multiplier?
d. Calculate the change in the budget surplus that arises of the tax rate increase from 0.20 to 0.25. would you expect the change in the surplus to be more or less if c= 0.9 rather than 0.8?
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