Calculation for Macro variables in a closed economy.
In a closed economy without a government sector, consumption is determined as 80% of the income available to households. Investment is autonomous at a level of £450.
Now suppose that that the government levies direct taxes of 10% of income and undertakes expenditure of £250, with investment back at £450:
A. What is the equilibrium level of income?
B. find out disposable income, consumption and aggregate demand.
C. Illustrate what is the size of the government budget deficit?
D. Compute the value of the multiplier if investment increased by £50.
E. Compare your answers to c. and h., how and why do these two differ?