# Consider a closed economy represented by the following equations: C= 0.5 (Y - T)+ 500 With I=

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## Question:

C= 0.5 (Y - T)+ 500 With I= 200 G= 150 T= 100

Questions:

1) Explain these equations. What do they correspond to?

2) Determine the equilibrium income of this economy.

3) Calculate consumption, savings and aggregate demand at this equilibrium.

4) The government decides to stimulate the economy and achieve full employment income (set at 1,000 units) by means of a fiscal policy. How much should G vary?

5) Instead of increasing public spending, the government decides to raise taxes T = Ty with 40= %.

a) Write down and calculate the new equilibrium income

b) Calculate the fiscal policy multiplier To arrive at full-employment income (1,000 units) by how much must T vary?

**Related Book For**

## Macroeconomics

ISBN: 978-0321675606

6th Canadian Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone