Question: Consider an economy with no foreign trade whose consumption function is given as C = c(Y + TR T). Taxes are determined as T

Consider an economy with no foreign trade whose consumption function is given as C = c(Y + TR − T).

Taxes are determined as T = τY and transfer payments are determined as TR = tr0 − trY, where tr0 and tr are positive constants.

Suppose that initially c = 0.9, τ = 0.2, tr0 = 666.67, tr = 0.05; I = 500, and G

= 1,000.

(Note that some of the results are very sensitive and identities may deviate by rounding error.)

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