Consider the following model of the economy
C = 20+0.75(Y-T)
I = 380
G = 400
T = 0.20Y
Y = C + I + G
- What is the value of the MPC in this model?
- Compute the equilibrium level of income
- At the equilibrium level of income, what is the value of the government budget surplus?
- Increase G by 10 to 410, calculate the government-purchase multiplier, and explain why
it no longer equals 1/(1-MPC).
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