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Homework answers / question archive / Assume the following for the economy of a country: Consumption function: C = 60 +0
Assume the following for the economy of a country: Consumption function: C = 60 +0.75Yd • Investment: 1 = 79 • Government spending: G = 46 • Net taxes: T = 0.2Y - 25 Disposable income: Yd =Y-T Equilibrium: Y = C + I + G O Equilibrium income is $7. (Round your response to one decimal place.)
Equilibrium income is $ (Round your response to one decimal place.) In equilibrium, the government collects net taxes of $ (Round your response to one decimal place.) In equilibrium, the government's budget deficit or surplus is $ . (Round your response to one decimal place and include a minus sign if necessary.)
1). Equilibrium income = C + I + G
Y = 60 + 0.75 Yd + 79 + 46
Y = 60 + 0.75 (Y- T) + 79 + 46
Y = 60 + 0.75[ Y-(0.2Y-25)]+125
Y = 60 + 0.75(Y-0.2Y+25) +125
Y = 60 + 0.75(0.8Y + 25) +125
Y = 60 + 0.6Y + 18.75 + 125
Y = 282.75 + 0.6Y
Y- 0.6Y = 282.75
0.4 Y = 282.75
Y = 282.75/0.4 = $706.9 .
Equilibrium income is $706.9 .
(2). Net taxes = 0.2Y - 25
T = 0.2 * 706.9 - 25
T = 141.38 - 25
T = $116.4 .
(3). Budget balance = government income - spendings
Budget balance = 116.4 - 46
Budget balance = $70.4 .
There is a government budget surplus of $70.4.
