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Finding the equilibrium level of income and determining the size of both the government purchase and tax multipliers.

Consider a closed economy described by the following equations:

E = C + I + G

G = 1000

T = 1000

C = 300 + 0.75(Y - T )

I = 1200

a. Find the equilibrium level of income.

b. Describe the size of both the government purchase and tax multipliers. What do they mean?

c. Assume that government spending rises by 10%. What would happen to the equilibrium level of output determined in part a.

d. Assume that government cut taxes by 10%. What would happen to the equilibrium level of output determined in part a.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M920530

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