Macroeconomics - INTRODUCTION TO MACROECONOMICS SPRING 2008...

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INTRODUCTION TO MACROECONOMICS SPRING 2008 ADDITION TO PROBLEM SET Please return to the economy where: C = -400 + .8Yd T = 100 I = 1000 G = 800 25. Suppose that we have a balanced budget increase in Government Spending and Taxes (see Case and Fair pp. 184-185) of 500 . Show what will happen to equilibrium Y? What is the new equilibrium Y ? (Please note that a balanced budget increase means an equal increase in Government Spending and Taxes, so it would be neutral from the point of view of the Government budget. You raise taxes to offset the increase in Spending exactly.) 26. What is the relationship between the change in equilibrium Y and the balanced budget increase in G and T of 500? 27. What is the balanced budget multiplier ? Please return to the economy where: C = -400 + .8Yd T = 100 I = 1000 G = 800 Now suppose that in this economy, an income tax is added equal to 10% of income. The tax function would now be T = 100 + .1Y .
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28. Write the new Aggregate Expenditure function for this economy, with the
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This note was uploaded on 11/13/2011 for the course ECONOMICS 304K taught by Professor Ledyard during the Spring '08 term at University of Texas.

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Macroeconomics - INTRODUCTION TO MACROECONOMICS SPRING 2008...

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