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Unformatted text preview: (6a) Y = 650 + 0.75Y - 45 (6b) Y - 0.75Y = 605 (6c) 0.25Y = 605 (6d) Y = 605 / 0.25 = 2420 = AE The Model Economy III (7a) C = 500 +0.75 (2420 - 60) = 2270 (7b) S = Y - C - T (8) S + T = 90 + 60 = 150 (9) I + G = 50 + 100 = 150 (10) S + T = I + G | Equilibrium (10a) leakages = injections (10b) withdrawals = injections (10c) W = J | Equilibrium Condition See figure 10.2 on page 204 in the textbook Balanced-Budget Multiplier: the ratio of change in the equilibrium level of output to a change in government spending where the change in government spending is balanced by a change in taxes so as not to create any deficit. The balanced-budget multiplier is equal to one: The change Y resulting from the change in G and the equal change in T is exactly the same size as the initial change in G or T itself....
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- Spring '99
- Fiscal Policy