Consider the following simple model with investment and, Ask an Expert

Economics

Consider the following simple model with investment and government spending exogenous:

Y = C + I + G

C = a + bYd

Disposable income Yd is given by Y - T where T is total taxes. Suppose that taxes are not directly related to income, so that T can be increased or decreased independent of income.

a. Derive the change in Y associated with an increase in taxes T. Show the results graphically and algebraically. What is the tax multiplier?

b. Now increase government spending G and taxes T by the same amount. For this change, the balanced government budget deficit G - T does not change. If the budget was balanced before, it will still be balanced. What happens to income Y in this case? Perhaps surprisingly, it increases. Calculate by how much. The result is called the balanced budget multiplier.

View complete question

Business Economics, Economics

Category:- Business Economics
Reference No.:- M91406825

Have any Question?Write your Review or question?

Related Questions in Business Economics

Manny moe and jack have the following demand curves for

Manny, Moe and Jack have the following demand curves for pears: QManny = 100 - 2P = 70 - 2P + 10 Ppear + .25 YManny where P Pear = 2 and YManny = 40. QMoe = 300 - 4P = 80 - 4P + 35 Ppear + .75 YMoe where P Pear = 2 and Y ...

A cartel is branch of an oligopoly there are still a

A cartel is branch of an oligopoly. There are still a handful of large firms and many smaller firms. For instance, the diamond industry and the petroleum industries are examples are oligopolies. However, the main differe ...

Explain why the purchase and sale of used goods and of

Explain why the purchase and sale of used goods and of financial assets are not included in the calculation of GDP even though transactions in these items amount to billions of dollars daily.

Would it ever be rational for a firm to retain an employee

Would it ever be rational for a firm to retain an employee whose current marginal revenue product is less than her current wage? Explain.

From a random sample of 41 teens it is found that on

From a random sample of 41 teens, it is found that on average they spend 31.8 hours each week online with a standard deviation of 3.65 hours. What is the 90% confidence interval for the amount of time they spend online e ...

1 government spending fluctuates less than spending by

1. Government spending fluctuates less than spending by households and spending by firms on investment. Explain. 2. In countries with well-developed tax collection and welfare systems, there are automatic stabilisers tha ...

What is a survey and pros and cons of using this method to

What is a Survey and pros and cons of using this method to collect data are? Have you done a survey? How successful were your results?

You will receive a payment of 10000 per year forever

You will receive a payment of $10,000 per year forever; however the first payment will not begin for 9 years. If the appropriate interest rate is 7%, what is this worth today? Is this 10,000/.07 for 142,857.14? Does it m ...

What are the main things to remember about elasticity

What are the main things to remember about elasticity, supply and demand, tax incidence, government controls on the market, and economic theories?

From a consequentialist perspective that has as its

From a consequentialist perspective that has as its objective improving the standard of living of unskilled workers, is the introduction of a minimum wage ethically justified?

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Business Economics Expert