Reference no: EM132274950

Consider an economy in the short run with the price level P fixed at 1. Other relevant information is:

C=100+0.75(Y-T)

I=750

T=-40+(1/3)Y

G=1000

Y=C+I+G

Answer the following:

a) Solve for the equilibrium level of income Y

b) How does the government collect taxes (T) at equilibrium?

c) Is there a surplus or deficit and how much?

d) Calculate the government spending multiplier.

e) Calculate the new equilibrium level of income if G increases from 1,000 to 1,500 (i.e.,

ΔG = 500)

f) Calculate the lump-sum tax multiplier.

g) Show that C + I +G = Y and that S = I