Solution-Find the new equilibrium size of income

Find the new equilibrium size of income

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Reference no: EM132518047

Assume the following economy: Autonomous Consumption = £10,000; Marginal Propensity to Consume = 0.8; Business Investment = £30,000

A. Find the equilibrium size of income Y and the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000) (5%)

B. Assume now that a government sector is introduced, while business investment is still £30,000. Government spending injects £50,000 into the economy. However, in order to finance its expenditure the government levies an income tax at a rate of 25%.

Find the new equilibrium size of income and calculate the size of the Multiplier of Business Investment (hint: to find the Multiplier increase investment by 10,000)
Identify whether the government balance is balanced or not when I=30,000 and G=50,000

Reference no: EM132518047

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Find the new equilibrium size of income

Reference no: EM132518047

Reference no: EM132518047

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