1. An economy has a consumption function C = 125 + 0.8 Yd. All income is subject to income tax at the rate of 0.25. If the value of private sector investment is 240 and government spending is 375.

 Find a balance of income and whether the government budget is in surplus or deficit. 

2. In an economy modeled by the following equation C = 350 + 0.6 Y M = 50 + 0.1 Y I = 480 and X = 310 Find a balanced level of income. Check withdrawals (W) is it the same as an injection (J), Is it S = I, what can be concluded from the trade balance?

3. The picture of an economy is described by the following equation system: C = 45 + 0.75Yd Consumption Yd= Y -T Disposable income T = 70 Lump sum tax G = 90 Government expenditure I = 350 -1000R Investment MD = 190 -2000R + 0.4 Y Money demand MS = 450 Money supply

a. Find the equations for the IS Curve and the LM Curve. 

b. What is the balance value of Y and R.

c. Is the government budget deficit or surplus 

d. Is W = J 

e. What is the impact of reducing the money supply to MS = 360 

f. In the initial equilibrium condition, if the lump-sum tax is replaced by income tax, what is the tax rate t required to generate a tax of 70. 

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1 The consumption function in the economy is given as C12508Yd or C12508YT where T is the total tax amount and where C and Yd represent the aggregate consumption expenditure on goods and services and ... View the full answer