420worksheet15(2)

420worksheet15(2) - increased by 50 too so that there is a...

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ECON 420 Worksheet 15 1. In the Keynesian cross, assume that the consumption function is given by C = 100 + 0.90*(Y-T) Planned investment is 100; government purchases and taxes are both 100. a. Calculate equilibrium level of income? Calculate C and S. b. If government purchases increase by 50 what is the new equilibrium income? c. Instead of (b), if the government cuts taxes by 50, what is the new equilibrium income? d. Instead of (b) and (c), let us say that government purchase increase by 50 while taxes are
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Unformatted text preview: increased by 50 too so that there is a balanced budget. What is the new equilibrium income? What is the balanced budget multiplier? e. Now let us go back to the original equilibrium with C = 100 + 0.90*(Y-T), G=T=100 and I=100. If there is decrease in autonomous consumption so that the new function is C = 50 + 0.90*(Y-T), what is the new equilibrium income? C? S?...
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